KYC Process

"Know Your Customer" or “KYC” delineates the process of verifying the identity of your clients. The KYC procedure is a deterrent against illegal activities like money laundering and fraud and provides protection for both the corporation and its clientele. As a financial organization, if you are unconsciously aiding financial scams or terror financing, you risk facing sanctions, fines, and damage to your reputation. KYC is critical for shielding your company from losses and theft resulting from illicit cash transactions and activities.

KYC signifies the measures a financial institute (or any corporation) implements to:

  1. Establish customer identity;
  2. Understand the nature of the customer’s transactions (chiefly to confirm the legality of the customer’s funding sources);
  3. Evaluate the money laundering risks associated with the customer to supervise their activity.

The Significance of the KYC Process

With the intent of thwarting criminals exploiting the global financial structure for money laundering or illicit cash flow, regulatory bodies and central banks worldwide have broadened KYC norms. New statutes have been enacted and the coverage of existing laws has been expanded to include nearly all sectors of the global economic landscape.

The amplified accent on KYC procedures today is a response to the escalating incidents of financial crimes globally. It also echoes the surge in global connectivities among financial entities and businesses.

The constant movement of unprecedented volumes of wealth globally via these connections makes monitoring and preempting illegal financial actions increasingly complicated. To counter this, KYC screenings have been revised and amplified.

Executing the Know-Your-Customer Process

Statutes and regulations dictate the basic requisites for the KYC process. Precise KYC norms (for example, KYC documentation) are industry-specific, with banking and financial services firms bound by the strictest KYC protocols.

With the digital transformation of the Know-Your-Customer process, several technologies (like AI and NFC) along with security measures (like checks and holograms) are utilized to ascertain an individual's identity (for instance, biometrics, liveness). The KYC process may include:

  1. Document Verification: The customer's official identification document is scrutinized for any counterfeit or irregularities.
  2. Face Verification: KYC screenings are performed to confirm the live presence of the customer in a timely manner to deter spoof attacks.
  3. Address Verification: Proof of Address (POA) is obtained to verify the address in the official identification documents.

The Advantages of a Robust KYC Process

In an economy becoming increasingly global, financial entities are highly vulnerable to illicit criminal actions. KYC norms aim to protect these institutions.

  • Swift Access: After successful KYC verification, customers often enjoy immediate access to products and services. Digitized KYC processes drastically reduce hurdles and delays in closing business or customer transactions or contracts, thus improving customer experience.
  • 24/7 Accessibility: Automated remote solutions enable customers to undergo KYC validation anytime, anywhere. Digital KYC solutions are well-known for their extensive usability.
  • Economical: Especially with AI-guided and automated KYC solutions, businesses and service providers can boost conversion rates and minimize customer acquisition costs.
  • Regulatory compliance: Several KYC procedures offer modules for adding supplementary security checks and augmentations (like QES or a penny bank transfer), enhancing regulatory compliance and safety.
  • Trustworthy: Conforming to KYC laws not only reduces penalties but also minimizes damages to reputation. A stringent KYC procedure instils credibility in a financial organization, which is valued by its customers.

Who requires KYC?

Regular KYC norms are often applicable when a business onboards a new customer or when an existing customer acquires a regulated product. KYC norms apply to virtually every organization that handles money, especially financial entities like:

  • Credit Unions
  • Financial Institutions
  • Asset Management Corporations and Broker-Dealers
  • Financial Technology Applications

Criminal activities in this sector can adversely impact not just the relevant financial institution, but the broader market or economies and other clients as well.

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