Which of the following is a key goal of an effective KYC policy?

An effective Know Your Customer (KYC) policy primarily aims to minimize the firm's susceptibility to illegal activities, such as money laundering and terrorist financing. By implementing robust KYC procedures, organizations can accurately identify and verify the identity of their customers, assess any associated risks, and monitor their transactions for unusual or suspicious activity. This diligence not only protects the firm from being exploited for illegal purposes but also helps maintain the integrity of the financial system as a whole.

Ensuring customer loyalty, maximizing investment returns, and improving service speed are important business objectives, but they are not the primary focus of KYC policies. KYC is fundamentally about compliance with regulatory requirements and the protection of the financial institution's reputation and operations from potential legal and financial repercussions arising from illicit activities. Thus, the emphasis on minimizing susceptibility to illegal activities directly ties back to the core purpose of KYC initiatives.