In these modern times, making transactions worldwide has become quite easy. However, institutions need to be able to verify their customers. Know Your Customer (KYC) is a verification method that is common in the financial industry. If you have ever applied for insurance or opened a bank account, then you are familiar with KYC checks.
Organizations have to identify and scrutinize who they are in business with. This pressure from the international community seeks to eliminate financial crime and terrorism. For this reason, KYC directives have become instrumental. They also go hand in hand with Anti-Money Laundering (AML) regulations as well. Specific legislation may vary for different regions, but the basics remain fairly similar. Businesses with international dealings meet KYC standards of their customers’ regions.
Know Your Customer compliance framework consist of:
Identifying your Customer
Before getting into business with a potential client, analyze all their information. Check for any inconsistencies ensuring they are not on any sanctions list. These include Interpol, OFAC, and others. Also, find out if your prospective client is a Politically Exposed Person (PEP). Such individuals are high risk due to a higher susceptibility to corruption. They should be subjected to certain extenuating measures.
Client Due Diligence (CDD)
During your KYC process, ensure that you collect all the relevant and available data about your potential client from trusted sources. Do your due diligence to determine the nature, intent, and benefits of your business relationship for both parties. Maintain continuous monitoring of the business relationship to ensure consistency.
Enhanced Due Diligence
Enhanced due diligence are measures taken if a client poses a higher risk than expected. Such clients include PEPs, people who are in countries that are on the high-risk third countries list, or in a relationship with your competitor. EDD involves more vigorous monitoring and more thorough investigative research.
The best way to comply with KYC requirements is to incorporate the gathering and scrutiny of customer data into existing procedures like customer onboarding. It can be tiresome to perform all these procedures effectively at scale. For this reason, automation through electronic KYC (eKYC) comes in handy. It is more accurate and quicker for a computer to cross-reference customers’ identity information than it is to do it manually. The system is also more likely to detect fraudulent documents than the human eye. The KYC procedure becomes more efficient when done with the help of automation.