KYC Process

KYC is an acronym for “Know Your Customer”. It outlines the procedure of the (new) client KYC verification process. KYC is undertaken to avoid unlawful actions such as fraud and money laundering and therefore safeguards both the business and the customer.

Do you recognize your client? At the very least, you should. If you, as a financial institution (FI), facilitate financial fraud or terrorist funding, you might face penalties, sanctions, and reputational harm. Moreover, KYC is crucial in safeguarding your firm from theft and losses caused by illicit cash and activities.

“Know Your Customer” refers to the actions a financial institution (or company) takes in order to:

  • Create customer identification;
  • Recognize the nature of the customer’s activity (the major objective is to ensure the legitimacy of the customer’s source of finances); and
  • Assess the risks of money laundering linked with the client in order to monitor the customer’s activity.

The Cruiciality of the KYC Process

In an effort to crack down on criminals who use the financial system to launder money or launder unlawful proceeds, authorities and central banks across the globe have expanded the scope of their know-your-customer (KYC) rules, enacting new legislation and broadening the scope of existing ones to include practically every sector of the world’s economic ecosystem.

Today’s heightened emphasis on know-your-customer procedures is due to the increasing frequency of financial crime worldwide. However, it also represents the development in the number of international linkages between financial institutions and business entities.

Each day, more wealth than ever before transfers across the globe through these linkages, making it increasingly difficult to monitor and prevent unlawful financial operations. To keep up, regulators have altered and enhanced KYC checks.

How the Know-Your-Customer Process Works

Laws and regulations outline the fundamental needs for the KYC procedure. The specific KYC standards (e.g., KYC papers) vary by industry, with financial services firms and banks required to follow the strictest KYC procedures.

Since the Know-Your-Customer process has gone digital, numerous technologies (like NFC and AI) as well as security features (like a hologram) and checks are used to verify an individual’s identity (e.g., biometrics, liveness). It may include the following KYC process steps:

Document Verification. The individual’s government-issued identification document is checked for forgery or any other problem.

Face Verification. To detect any spoof attacks in a timely manner, KYC screening processes are conducted to confirm the customer’s live presence.

Address Verification. Proof of Address (POA) is acquired to validate the location on government-issued identification papers.

The benefits of a Strong KYC Procedure

Financial institutions are particularly susceptible to unlawful criminal activity in a globalizing economy. KYC requirements are intended to safeguard financial institutions.

  • Rapid availability. Upon successful completion of a KYC check, consumers often obtain rapid access to goods and services. The digital KYC onboarding process may drastically eliminate any delays or challenges in finalizing a transaction or contract between businesses and customers, hence enhancing the customer experience.
  • Anytime and anywhere. By using automated remote solutions, users may undergo KYC certification at any time. Digital KYC process solutions are often distinguished by their high degree of use.
  • Cost-efficient. Particularly with AI-driven and automated KYC solutions, businesses and service providers may increase conversion rates and optimize client acquisition expenses.
  • Conforming to regulations. Many KYC processes are modular, allowing for the insertion of supplementary security checks and extras (such as QES or a penny bank transfer) to provide even greater safety and regulatory compliance.
  • Reputable and dependable. Compliance with KYC laws will not only lower the likelihood of fines, but it will also prevent any reputational harm. Having a rigorous approach to KYC procedures would provide credibility to a financial institution, which will be appreciated by its clientele.

Who needs KYC?

When a company onboards a new customer or an existing client obtains a regulated product, normal KYC processes often apply. KYC requirements are applicable to almost all entities that deal with money (i.e., virtually all businesses), including financial institutions in particular:

  • Credit unions
  • Financial institutions
  • Asset management companies and broker-dealers
  • Financial technology applications

In this industry, criminal activities may harm not just the connected financial institution, but also other clients and broader markets or economies.

Testing. CI/CD. Monitoring.

Because ML systems are more fragile than you think. All based on our open-source core.

Our GithubInstall Open SourceBook a Demo