In this age of digitization, criminals employ various techniques to use financial sectors for illicit activities. uses artificial intelligence to generate illegal identities such as deep fakes. Industries experience serious risks of identity theft and financial fraud. KYC compliance is mandatory to make organisations secure. It facilitates financial industries to combat illegal activities and to have successful AML compliance. KYC is an ethical requirement for industries that have to deal with clients to open and maintain accounts.
How Does The KYC Compliance Facilitate Bank Sectors?
Know Your Customer (KYC) is the method of verifying customer identity during onboarding or throughout the client’s journey. KYC compliance is mainly utilised to access clients’ risk profiles which make banks aware of future mishaps. It enables financial institutions to fight against money laundering and unauthorised clients to be onboard. Industries require KYC compliance to establish customer-broker relationships, enabling them to access each client’s profile. It also makes customers aware of laws and regulations used for securities.
KYC Requirements
KYC compliance empowers financial institutes with various mechanisms to identify authentic clients. It helps to prevent terrorist activities such as illegal transactions and money laundering. The KYC compliance process mainly includes the following three key components.
CIP (Customer Identification Program)
It involves the collection of various documents for specific information. Information is collected for two types of verifications
- Identity Verification
- Address verification
Various documents are collected regarding name and address information. This stage mainly includes data collection, identification, and sanction lists. Financial institutes mainly include four types of information which include, address, name, DOB, and ID number.
Customer Due Diligence
This stage involves risk assessment and management, all the collected credentials are evaluated and analysed to identify suspicions and risks. It further includes SDD (simplified due diligence) and EDD (Enhanced Due Diligence) as per the level of risk profile.
SDD is employed for clients with average risk profiles, but in the case of money laundering and terrorist financing risk, the EDD is employed to secure organisations.
Ongoing Monitoring
For financial institutions, it is mandatory to have a continuous monitoring process over transactions and other details. KYC enables firms to access customers’ real-time dealings.
Which Documents Are Required For Businesses To Know Their Customers?
KYC documents vary as per the required information. Mainly in identity verification, government-issued identity cards with a biometric chip on them These biometric-embedded chips enable organisations to have automated verification processes regarding KYC verification. For address information companies require the following documents;
- Licences
- Social Security cards
- Passports
- Utility Bills
Reasons For The Usage Of KYC Solution
Many institutes facilitate themselves with KYC compliance online, which enables them to filter out fraudsters and money laundering worldwide. In this digital era, companies are moving toward having KYC compliance. The following are the major reasons that encourage organisations to get the facility of the KYC process.
Cost Effective
KYC compliance checks online clients’ identities and provides a solution for both customers and institutions to reduce costs and have verification through the Internet. Companies are not required to hire multiple clients for the identity verification process.
Automated Solutions
The KYC process involves the use of artificial intelligence technology, machine learning, and AI pre-trained models process automatically. It enables the reduction of human efforts and the risk of errors.
Fraud Prevention
Organisations associate business relationships worldwide, and global KYC compliance enables organisations to identify authentic clients over the globe. It makes the organisation secure and builds a kind of trust towards its clients.
AML compliance
Banks are mainly used by money launderers, which leads financial institutes toward higher future risk and heavy penalties. Banks have to suffer with heavy fines for those suspected of being involved in illegal actions. Thus KYC measures enable the finance industry to cope with the strategies designed as anti-money laundering solutions.
Final Words
KYC compliance is the only solution to unveil the persons using fake IDs or falsified documents. It enables financial organisations particularly banks to become secure from the use for money laundering. The KYC process enables companies to know the individuals whom they are going to have on board. Organisations facilitate themselves to cope with advanced digital technology including artificial intelligence. Additionally, it protects financial organisations from the hands of financial terrorists and scammers, who utilise finance departments for illicit transactions and the storage of black money.