In this digital age of the KYC Verification Process, fraudsters and con artists have developed sophisticated tactics to further their nefarious ends. Such organizations frequently abuse legitimate institutions like banks, the financial sector, e-commerce, credit unions, etc., to take advantage of the free services and turn unlawfully obtained funds into legal ones. As a result, the financial industry relies on control systems that were designed to gather customer data.
Another reason why so many businesses are used for money laundering and other illegal activities is that they don’t comply with regional and international AML standards. The proceeds of illicit transactions are subsequently used to finance terrorism, the drug trade, or other illegal operations. Businesses that violate AML rules are subject to sanctions and sizable fines. Companies must therefore take into account AML or KYC compliance.
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Why is KYC Verification Process Compliance Difficult?
Meeting KYC requirements is very expensive for businesses. Financial institutions invest significant money each year in KYC banking compliance. The process of bringing on new customers would be drawn out, sometimes taking months, as a result. Customers get angry during the long waits to complete the process, and banks end up losing money. Clients want fast, seamless service.
Modern technology assists banks in accelerating the regulatory compliance process. The efficiency of a bank’s routine could be significantly increased by incorporating KYC services.
KYC vs AML
Companies are required to abide by the AML regulations set forth by the regulatory authorities or risk paying hefty fines. The KYC verification process, which entails authenticating the customer’s identity, is governed by AML regulations.
In addition to developing KYC solutions, each financial sector must adhere to restrictions imposed by the country’s AML laws. Therefore, each country must develop its KYC procedures according to its local AML laws.
Steps of KYC Verification Process
KYC verification is an online process that verifies a client’s identity in a manner similar to more traditional methods. The following are the steps that make up the KYC verification process:
- Collection of Information
Clients must submit personally identifiable data, such as their name, date of birth, address, etc., in the first step of the KYC procedure. The client should enter their personal details while registering on the platform.
- Requesting Evidence from the User
After entering their personal information, the client must complete the next step by uploading a supporting document to demonstrate their identity. These can include an ID card, passport, driving license, etc. This makes it easier for the verification system to make sure the data entered by the client is accurate and not fabricated.
- Verification of the Information
The document’s template is first identified, after which it is put through a number of checks, and the client has uploaded it as evidence. This procedure aims to ensure that the uploaded document has not been altered or photo-shopped. In two different ways, the information is taken from the documents:
- Using OCR: Automatic data extraction and accuracy checking are performed on identification documents.
- Without Using OCR. It involves manually entering data, and IDV will compare that data with data on the client’s identification documents.
KYC Verification Process – Which Industries Need this?
All financial sectors must conduct the KYC process when onboarding customers or setting up and managing the customer’s account. The KYC verification process must be followed by any customer who wants to join or access a regulatory product or service. The following is a list of the financial institutions that must adhere to KYC requirements.
- Private lending platforms
- Banks
- The use of FinTech applications varies depending on the activities
- Wealth management companies
- Credit unions
Every company that deals with money are required to adhere to KYC compliance rules to the letter. Along with the banks, any sector that directly deals with money or collaborates with banks must strictly follow KYC compliance regulations.
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What Initiates the KYC Verification Process?
KYC (Know Your Customer) is usually triggered by:
- Change in the business nature of the customer
- Addition of new parties to the account
- Unusual transactions
- Change in client’s occupation
Final Thoughts
Artificial intelligence has entirely enhanced onboarding processes and digitalized them, eliminating barriers and facilitating user access to online products and services across all businesses, not just the financial sector.
Not all companies offering e-KYC solutions utilize their systems’ most recent techniques and resources. Because of this, it’s essential to rely on comprehensive Know Your Customer (KYC) solutions that assist the company and the client throughout the onboarding process, as well as additional verification requirements, while also offering the highest level of regulatory and technological guarantees. If not, it is possible that the system won’t provide all of the advantages and won’t fully adhere to the KYC verification process. Including this process should produce the desired results, but it could also cost the business heavily in fines.
