Verifying the customer identity under KYC processes has made fraud prevention and risk assessment, a comparatively easier task.
The present digitized era and increased reliance on computers and other technological gadgets have proved to be extremely beneficial for not only businesses but scammers as well. The recent shift to the digitization of traditional business processes, mainly due to the coronavirus outbreak, has actually been a blessing in disguise indeed for the criminals. The business’s lack of understanding of the implementation of adequate identity verification procedures has made them fall prey to the witty tactics of the scammers.
Although, every business in general, faced fraud and had to suffer from the loss the financial institutions were observed to be in danger, the most. This is because they engage in dealing with huge amounts of funds transfers and may skip authenticating their source. The scammers take full advantage of the situation to legitimize their illicitly obtained income. Money laundering has forever been an issue for financial institutions and has reached heights during the pandemic.
The solution to money laundering has been here for decades but the institutions did not acknowledge the need for it until the pandemic worsened the situation entirely. Hence, the need to verify and authenticate the identity of the customers before getting them onboard arose. Anti Money Laundering (AML), as well as Know Your Customer (KYC) regulations, build the best protection bars against terrorist financing, money laundering, tax evasion, and other financial crimes.
Understanding Know Your Customer Regulations:
Strict, adequate regulations implemented to verify and authenticate the identity of the customer associated with the business are termed as Know Your Customer solutions. KYC works interchangeably for Know Your Customer and Know Your
Client. The AI-based automated verification process begins by screening the customer’s documents, verifying those against authentic registries, and authenticating the identity.
During the verification process, the documents are inspected by comparing them to the sanction lists and PEP(Politically Exposed Person) checks to find out if the customer has previously been listed in the high-risk category. Screening for PEP is extremely important for the business as conducting business with them is considered a form of bribery and corruption and could prove to be harmful to the survival of the company.
Nowadays, KYC has a significant position in the fight against financial crimes like money laundering, terrorist financing, etc. It has been successfully building protection bars against financial crimes for a while now with its authentic and accurate customer identification process which is critical to the efficiency of the entire process. The national laws have implemented the international regulations that are influenced by the Financial Action Task Force (FATF).
Who needs KYC?
Nowadays, every business has developed the need to integrate KYC solutions in their business processes and optimize the network. However, banks and other financial institutions are observed to be using it the most. Since they deal in huge transfers of funds, it is rather easy for the criminals to swoop in with their illicitly earned money, posing it to be legitimate. Therefore, the financial institutions that fall under the regulated sector and need to comply with the anti-money laundering and KYC directives are as follows:
Banks
Credit institutions
E-currency services
Estate agents
Tax advisors
Accountants
Bookmakers and casinos
Access to the KYC solution:
The significance of identity verification solutions has increased to the extent that businesses are rapidly acquiring them. The process has been made easier by digital advancements. Considering the sudden shift towards digitization, both online and offline methods of Know Your Customer solutions have been devised. Hence, the process can be done via the following channels:
Online verification: The AI-powered automated KYC services tend to authenticate the identity of the customers via an online form that extracts the details of the customers and then verifies them against the data stored in the database. The customer’s risk status is checked by comparing them to the sanction lists etc.
Offline verification: The offline process allows the customer to install the KYC application, fill their details in a physical document, sign it and submit it to the respective authorities along with the attested copies of the documents. This, however, is a traditional way and is very less in use. It has been replaced by AI-based technology that provides an effective approach. This also usually entails adding an identity verification api on your website.
Common documents subjected to verification:
The documents and information, commonly subjected to verification for risk assessment are as follows:
- Company registration document
- Company name and address
- Legal representatives
- Commercial register entry
- Shareholder list
- Transparency register entry
