Know Your Customer (KYC) is a procedure that organizations use to verify the identity of individuals using regulated services. Several laws and regulations require companies in specific industries to implement KYC compliance measures to ensure transparency and help prevent illicit activities.
The rise of online and digital technologies has enabled criminals to commit fraud via the Internet, requiring unified global standards to fight fraud. KYC practices allow financial institutions to respond to this international, legal imperative. Any organization handling financial transactions must implement KYC procedures when onboarding a new customer.
Use CIP to verify the entity performing a financial transaction. This process is essential to control terrorist financing, money laundering, and other illegal activities adversely affecting the financial system. Once you have gathered this information, you should verify it against supporting evidence, including document verification or biometric verification.
CIP also involves the risk assessment of business and customer accounts. This process enables financial institutions to create parameters, which they use when providing each customer with a risk rating. KYC procedures thus contribute to the prevention of fraud.
In this step, you screen customer information against KYC protocols by collecting basic customer information online in real-time. The information gathered includes name, age, date of birth, and address. You use this information to verify the onboarding customer. You then assign a customer a rating according to their credentials, following the financial credibility and AML screening procedures.
If you find that a customer ID is on a watchlist or PEP record, you should consider the risk high and perform further Enhanced Due Diligence processes.
In offshore and private banking, you should implement CDD more deeply and inspect any suspicious activity in the system. CDD should be a scalable approach to reveal terrorist funding and money laundering financial systems by identifying the identities.
You need a strategy to monitor your customers continuously, including the surveillance of financial accounts and transactions. Financial experts should examine these transactions and reports based on thresholds created for a customer’s risk profile.
Here are some factors you should consider monitoring:
If you deem the account activity unusual, you must file a Suspicious Activity Report (SAR). Generally, the higher the initial risk you identified for the customer, the higher the level of ongoing transaction monitoring needed.
Related content: Read our guide to the KYC process (coming soon)
Automated Know Your Customer verification uses AI and machine learning (ML) technologies to help you comply with KYC regulations and ensure your customers meet legal standards. These technologies let you perform advanced verification procedures without relying on your internal resources.
While the KYC process still requires a human component (for example, when making high-level decisions), automated tools can carry out most tasks. For instance, Intelligent Process Automation (IPA) combines several technologies to manage, integrate, and automate digital verification processes.
IPA technologies let you extract data from documents, automate workflows, and accelerate screening, analysis, and verification processes.
If you use IPA and ML to collate and analyze data, they can provide you with an instant, comprehensive profile of each customer. In addition to helping you maintain KYC compliance, automation offers various short- and long-term advantages, including lower processing costs, greater efficiency, and a reduced burden on your human resources.
Customers look for the convenience of signing up for programs and applications via digital channels. In addition, they want a fast and seamless process.
Many organizations are subject to KYC regulations. Unfortunately, this involves forcing customers to go through cumbersome identification processes involving physical documentation and face-to-face verification in many cases. It could also include making customers wait for weeks or days to verify their identities, which creates a poor onboarding experience.
There is a strong need to move away from these manual processes and achieve a streamlined, digital KYC experience. A successful digital KYC solution provides:
Adopting a KYC solution with these capabilities will allow your organization to comply with KYC regulations while providing new customers a fast, convenient digital experience.
BlueCheck’s industry-leading identity verification infrastructure enables merchants to grow their business faster. As we serve a wide variety of industries, our solutions are custom-tailored to the unique needs of our customers, including PACT Act and eCommerce compliant offerings.