What does KYC mean?
In an expanding worldwide economy, financial institutions are more helpless to unlawful criminal activities. Know Your Customer, also known as Know Your Client (KYC). And this is the process persuade by businesses/companies to verify the identity of their customers. Or clients with the help of legal requisites and current laws.
The extensive utilization of new technologies. And the internet makes it fundamental to characterize guidelines that assist in combating online extortion/fraud. That is because the KYC verification processes act as an essential part of any kind of business. That needs users to onboard as their clients/customers.
However, it is effective in all industries, but it plays an important role in financial institutions and banking areas.
How does KYC differ from AML?
Anti-money washing (AML) regulations are ordere by both nations. And international specialists in the world and put a wide diversity of screening. The checking commitments on financial institutions.
KYC verification underlying the large umbrella of AML, regulations that are being use to prevent illicit cyber activities. For example, stopping fraudsters from acting as a customer to monitor monetary transactions for suspicious activities.
KYC is one of the many processes that fabricate Anti-Money Laundering (AML) compliance. Which covers all the precautionary measures use by governments and financial institutions to prevent financial crimes. KYC verification is use for the proof of identity to identify the customer of any business. Who they say they are, to help Anti-Money Laundering processes.
What is KYC Verification in the Banking sector, and how does it work?
KYC implies Know Your Client and could be a Standard Due Diligence (SDD) process practice by financial institutions. And other monetary services companies to evaluate. They monitor client risk and confirm a customer’s identity. KYC guarantees that a client is who they say they are.
Under this process, clients must submit documents that prove their identity and address. It may include ID card verification, face verification, and/or document verifications. For proof of their address, utility bills are examples of documents.
KYC verification in banking is the crucial process for identifying the customer risk and whether the client has met the requirements set by the financial institutions to use their services. It is a legal right to oblige all regulations by the Anti-Money Laundering (AML) It is the responsibility of the institutions to make sure that the clients are not getting involve in criminal activities.
According to the recent FinCEN news, to strengthen and shorten Customer Due Diligence (CDD) requirements and come across KYC verification in the finance industry, define two essential points for the customers’ identification.
- Knowing your customer thoroughly and their relation intention towards business will help to create customers’ risk profiles.
- Continuous monitoring must be done, to identify and report suspicious transactions, on a risk basis, to keep customer information maintain and update.
Who Needs KYC?
As we have discussed earlier, Know Your Customer (KYC) falls under Anti-Money Laundering (AML) any business bound with AML must fulfill the KYC verification processes.
Generally, these are financial institutions, crypto businesses, real estate, and multiple gambling platforms that use their services on a perpetual basis.
However, KYC verification can also be use in other businesses that are not subject to AML regulations, such as marketplaces. It can prevent platforms from suspicious persons and risky suppliers.
Industries that need to comply with KYC procedures include:
- Financial Institutions (Banks, wealth management firms, etc.)
- Crypto Market (NFTs, ICOs, etc.)
- Real Estate
How e-KYC Verification used in Financial Institutions
e-KYC (Electronically Know Your Customer) is a procedure mainly use in financial institutions for authenticating new customers digitally. By verifying their identity and require other information. E-KYC (aka online KYC) services are normally integrated into finance-related mobile applications. That is access by the clients while they sign-up to use these services. During this process, a user has to complete an identity form, upload documents, take a selfie, and sometimes video verification through a video call for KYC verification.
Financial Institutions use electronically know your customer service to help to get to know their potential customers. As they provide multiple financial services. It is also use in financial organizations to decide on whether to offer a specific service or not to their consumers. It is possible to create an online KYC platform on your own, but it can lead you to high costs while meeting government regulations.
Financial institutions and customers have the same extensive implications for KYC verification regulations. Financial institutions must follow the KYC process while working the onboarding process of new customers. Such standards are set up to prevent financial crimes, money laundering, and other illicit ways of financial activities.
Money-Laundering and other suspicious financial activities often depend on anonymously open accounts. And increase stress on KYC verification regulations has led to increased suspicious activities. Using a risk-based approach with KYC can help financial institutions get rid of money laundering and illicit activities for a better customer experience.