Opinion
We must stop this ‘nasty weed’ plaguing our financial system
Noel Whittaker
Money columnistThere’s a nasty weed disrupting the world of finance: KYC. It’s pervasive, affecting more and more people every day, and yet most people have never heard of it.
It stands for Know Your Customer, and, like so many obstacles in our modern lives, it was born with the best of intentions. It’s an international set of guidelines and regulations, intended to stop villains by ensuring that financial institutions know who their clients really are.
Verifying someone’s identity when starting to do business with them does make sense, but the KYC rules have become a weed.Credit: Paul Rovere
However, it seems to me KYC does very little to stop the bad guys and causes a huge amount of expense and loss of productivity for the rest of us.
This month we sold the last of our residential investment properties, having learned the hard way that residential real estate is a lot more effort than shares for a much lower return. Of course, I asked our family solicitors to do the conveyancing.
As part of the KYC rules, they told me, they would have to identify us. When I asked why they would need to “identify” two people they know well, who have been clients for 30 years, the response was, “it’s a legal requirement”. So we had to produce passports and driver’s licences, and jump through all the other hoops associated with getting ID signed off.
Then I was talking to the bank about where best to deposit the sales proceeds, and mentioned the possibility of opening an account to keep the money separate from our other funds.
KYC rules have become a weed that smothers the flow of business and wastes a great deal of time and energy.
I wanted to put some into a 12-month term deposit, ready to pay the capital gains tax. We all know that easily accessible money tends to get spent, and the last thing I want is to get a bill for CGT with no money ready to pay for it.
Guess what? The bank, of which we are also long-term customers, said that when opening a new account, they had to formally identify us under the KYC rules.
It’s absolute madness, and these rules require fresh ID every two years! You have to wonder how these rules apply to the scammers who make headlines every week. So many scams involve sending money to a fake bank account – so the multimillion-dollar question is, what IDs do the scammers use when they open those bank accounts?
But KYC madness sprouts in many other environments too. Our home and contents insurance is due for renewal, so this week we have been having long phone discussions with insurance companies regarding valuations.
Each time they phone me, as well as telling me the call is being recorded, they tell me they must ID me. When I point out that they have called me, and it’s I who should be identifying them, their response is, “No, we have to identify you. That’s the law.”
It’s a dilemma because scammers’ modus operandi is often to phone you claiming to be from an institution such as your bank, with the aim of getting your personal details. In any event, my personal details are certainly not hard to find: Google has my date of birth, and every invoice I send out contains my bank details.
In this case, because I have been dealing with a person, and they were calling back about the matter, I was prepared to provide my date of birth and my full name.
Verifying someone’s identity when starting to do business with them does make sense, but the KYC rules have become a weed that smothers the flow of business, provides a new kind of cover for the crooks it was meant to disable, and wastes a great deal of time and energy. I think it’s time to get it under control in this country.
Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.