If there’s one thing virtually all banks and other financial institutions have in common, it’s the need to know who they’re doing business with. To that end, these institutions are required to comply with a wide range of regulations, including know your customer (KYC) and related anti-money laundering (AML) measures. Why is this so important, and how can you improve your organization’s KYC/AML program? Keep reading for the answers.
Why is KYC verification required?
While the finer details of what is required for KYC verification will vary by industry and region, it’s difficult to overstate its importance. When done right, an efficient yet thorough end-to-end KYC process helps to ensure that:
- Customers — including prospective customers — are, in fact, who they say they are.
- Applicants meet eligibility criteria to access an organization’s products and services.
- Organizations are able to quickly identify suspicious activity and investigate as needed.
- Banks and other similar institutions can avoid hefty regulatory fines for non-compliance.
- Companies can protect their systems and assets against money laundering activities and other forms of fraud.
It’s important to note that KYC requirements vary by industry and location. For example, KYC requirements for banks are different for institutions in the US than those that operate within the EU, UK, and elsewhere.
Especially when you consider the potential catastrophe that could arise without KYC processes, it’s not difficult to understand why KYC is important. In short, KYC benefits institutions as well as their customers.
- For banks or financial services organizations, KYC processes help to maintain compliance and protect the institutions against fraudulent activities.
- For customers, being able to trust that their personal information is safe and secure is of paramount importance. Efficient and well-documented KYC processes provide peace of mind as customers decide which organizations they can trust with their information.
What are the three 3 components of KYC verification?
There are three main KYC process steps:
- Identity verification
- Due diligence
- Ongoing monitoring
Let’s take a closer look at each of these steps, one by one.
This initial KYC phase typically occurs during account creation or new customer onboarding. And it’s exactly what it sounds like: individuals must provide specific types of documentation to verify that they are who they say they are. In addition to their identity, they may also be prompted to submit documents verifying their address or even income, in some applications. In addition to document or address-based verification, modern organizations are increasingly using biometric verification — a method that can dependably verify someone’s identity in seconds.
2. Due diligence
The next KYC stage involves follow-up steps for better understanding any potential risks posed by a particular customer or applicant. There are different levels of due diligence:
- Customer due diligence (CDD) refers to an organization's attempts to better understand an individual’s risk profile to identify any potential red flags. CDD begins with double-checking the customer’s provided KYC documents to ensure that they are legitimate.
- Enhanced due diligence (EDD), then, applies once an individual has been deemed to be on the riskier side. The types of situations that require EDD will vary based on industry, location, and other factors. EDD may also be performed based on a person’s professional or political exposure.
3. Ongoing monitoring
Once someone’s identity has been sufficiently verified and they have become a fully-fledged customer, the need for KYC does not go away. Since circumstances can — and almost always do — evolve over time, organizations must remain vigilant from a KYC perspective. Ongoing monitoring is important for catching any suspicious or unusual activity that could signal fraudulent activity or unauthorized access.
What is eKYC verification, and how does it work?
As you might expect based on its name, eKYC (or electronic) KYC relies on digital, online services for KYC verification. Generally speaking, eKYC processes are highly efficient and accurate, which helps to build two-way trust between institutions and their customers. Institutions that opt for eKYC are often able to leverage sophisticated online tools or software to expedite their processes, mitigating many of the challenges of manual KYC processes.
Which software is used for KYC?
A comprehensive KYC or eKYC platform will offer a wide range of features for improving and enhancing KYC processes. For example, Onfido’s platform was built around document verification, which can be combined with:
- Biometric verification, in which facial biometric recognition is used to determine the validity of a user’s submitted photo ID document.
- ID record validation, which checks user information against trusted databases.
- Watchlist screening and ongoing monitoring to help organizations maintain compliance and ensure that their users, assets, and systems are safe from unauthorized access and other forms of fraud.
Onfido’s Real Identity Platform: a better way to KYC
If you’re ready to know your customer — or know your customers better, and more efficiently — Onfido’s platform is ready to automate your KYC verification process. From initial identity verification through ongoing monitoring and risk assessment, let our platform elevate your KYC program to new heights in efficiency and effectiveness. Learn more about Onfido’s Real Identity Platform, and get in touch to chat with one of our KYC experts today.
Take our interactive tour to see different types of verification, the end-user experience, and how it’s orchestrated from Onfido Studio.