In the endless battle against money laundering and financial crimes, KYC emerged as a vital component. Client identification plays a crucial role in this process, serving as the first step towards attaining better performance in the following stages.
Financial institutions face growing high stakes in the international landscape of Anti-Money Laundering (AML) and deviating from terrorism financing. Global regulations, affected by standards such as FATF, have been integrated into national laws to address this issue. To understand it deeply, let’s define KYC and eKYC and analyze how advanced ID verification systems improve and streamline KYC processes.
What is KYC Authentication?
KYC is usually referred to as know your customer. It aims at confirming and authenticating the customer’s identity during the account opening procedure and at regular intervals. Financial institutions are responsible for verifying their clients’ true identities, ensuring they accurately portray themselves. If any client does not meet the minimum KYC criteria, banks usually have the authority to reduce the opening of an account or suspend a contemporary business relationship.
Importance of KYC Services
Banks execute a thorough KYC process, ensuring the credibility of their clients and monitoring or assessing linked risks. This process is instrumental in stopping and detecting terrorism financing, money laundering and illegal schemes. The KYC process encloses different verification techniques such as conducting face verification, validating ID cards and verifying documents such as utility bills.
Financial institutes must adhere to anti-money laundering and KYC regulations to mitigate fraud. The KYC compliance with the banks and failure to comply results in substantial penalties.
KYC Documents
Conducting the KYC process involves using independent and reliable document sources. Every customer is bound to provide credentials that confirm their address and identity. By 2018, the U.S. Financial Crimes Enforcement Network (FinCEN) presented extra bank requirements.
This requirement needs to verify the individual identity of legal entity clients with control, ownership and profit-sharing interests in companies. As a result, when a business opens a new account, it should furnish a social security number along with copies of valid image identification.
What is eKYC?
eKYC encloses diverse techniques for capturing and confirming information from identification documents. It involves using OCR technology to fetch relevant data from government-issued smart IDs containing a chip, which mandates a physical interaction with the ID. Another eKYC aspect involves using certified digital identities and facial recognition technology for online verification. These techniques enable reliable and efficient electronic verification of user identities.
KYC and Customer Due Diligence Measures
The KYC policy serves as a framework for financial institutions and banks to streamline the process of identifying their clients. It has to equip authorities with tools to fight terrorist activities. To combat international regulations targeting terrorist financing and money laundering, online kyc verification should be executed while establishing a business relationship with new clients. Usually, banks integrate the following four key features into their KYC policies:
1. Client Policy
Provide guidelines and principles to govern the client identification procedure.
2. Client Identification Process
It involves verifying their identity, collecting client data, conducting politically exposed individuals, and ensuring compliance with regulations.
3. Risk Management and Assessment
Conducting due diligence as part of the KYC procedure to assess the risks linked with a client and executing risk management accordingly.
4. Record-keeping and Ongoing Monitoring
Constantly monitoring client activities to report and detect suspicious transactions and maintaining thorough client interactions and transaction records.
Identity document verification usually involves a national ID document escorted by a document reader and advanced document verification software. These tools help in confirming the authenticity of the provided identification documents.
From ID-check to Digital Verification
There are different techniques for identity verification depending on the circumstances. Some still depend on the circumstances, and others rely on conventional paper-based checks. It requires users to execute KYC forms, and finds an example of this technique here.
Although, others adopt digital procedures that use different methods to ensure the credibility of identity documents. It includes verifying the document’s credibility and conducting extra biometric checks, including fingerprint and facial recognition, to authenticate the document holder. Enforcing a digital ID verification procedure allows banks to collect client demographic data automatically. This integration has several purposes, such as:
- Streamline the client onboarding procedure
- Conduct further risk assessment and due diligence
- Review Politically Exposed Persons (PEPs)
Financial organizations are bound to maintain records of transactions and information acquired through CDD measures. These requirements apply to new and existing clients, with the level of scrutiny based on the risk linked and materiality with every customer.
The Bottomline
KYC authentication and robust document verification systems are essential for financial institutions in fighting terrorism financing, money laundering and other online crimes. Financial institutes maintain regulatory compliance, secure operations and contribute to a safer environment by enforcing efficient KYC policies and prioritizing customer identification.
Read More About Manga Owl.
