How the KYC Process Works

The term KYC stands for “Know your customer”. KYC is used before onboarding them to your organization or system. KYC refers to the procedures and controls businesses must implement to verify their customers’ and clients’ identities before and during a commercial engagement.

Under KYC compliance, customers need to produce personal information. Most banking institutions, credit firms, and insurance companies use KYC before onboarding them and upgrading their system in the future.

Under the KYC process, customer data is used to verify their identities, support compliance risk assessments, and ensure that they are not implicated in financial crimes like corruption, bribery, money laundering, or terrorism funding.

Let Us Discuss What A KYC Process Include:

Data collection

Many financial institutions start their KYC process by gathering basic customer data and information, ideally through electronic identification verification. The following are the basic KYC data requirements:

  • Names
  • Address
  • Date of Birth
  • Social Security Numbers

Data Verification

After collecting basic consumer information, banks and other financial institutions can compare it with data they have stored for people who have been linked to criminal behavior. This may include the following:

  • People from a high-risk jurisdiction
  • Sanctions and watch lists on a global scale
  • Lists of Politically Exposed Persons
  • Registries of people implicated in bribery or corruption
How the KYC Process Works

Risk Evaluation

Banks use the KYC data they have gathered to determine whether or not a customer can indulge in a financial crime in the future. Financial institutions use the results of a risk assessment to establish a customer’s risk profile and make predictions about their future financial behavior.

Banks may also utilize a customer’s risk profile to continuously monitor their account activity and spot unusual and suspicious activities of financial transactions.

Risk-based KYC process, as recommended everywhere. It helps businesses to reconcile their compliance duties with their financial resources. Customers who are considered to be at higher risk may be subjected to more stringent KYC procedures, while those who are at a lesser risk may only be subjected to the bare minimum of inspection.

The Final Wrap

Financial institutions can use KYC-based risk assessments to compare a client’s financial behavior to that of their peers. Banks may utilize clients’ profiles to compare their financial backgrounds and industry ties to estimate the risk of criminal activity when clients deviate from typical financial behavior.

So, implement an effective KYC process and ensure a robust system for the future. Contact us to know more.

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