Governments and central banks around the world have been expanding the scope and reach of their KYC policies to combat illegal activities that use the financial industry. As a result, effective KYC compliance can create new regulations to cover nearly every aspect of the global financial ecosystem.
One of the reasons for the increased focus on the KYC process is the growing prevalence of financial crime around the world today. However, it also represents an increase in cross-border linkages between financial institutions and corporate entities.
More financial activities are happening worldwide through these linkages every day than ever before, making it more difficult to stop and prevent unlawful financial transactions. As a result, regulators have altered and enhanced KYC checks to keep up.
Traditional Know Your Customer (KYC) Procedures
In the traditional KYC system, customers need to give various basic information about their life as part of the KYC process. It contains customer names, addresses, social security or national insurance numbers, and company numbers, among other things.
This data is then augmented with publicly accessible information about the entity, such as names and addresses, registration numbers, stock exchange listings, and annual reports obtained from other sources. The system then compares the KYC data to a database of individuals and organizations that governments and law enforcement agencies are aware of.
Purpose of KYC Compliance
An effective KYC process can identify those who are suspected of being involved in criminal activities. It can give intelligence firms the necessary information on an individual suspected of bribery or money laundering. It can be used to detail which jurisdiction’s international sanctions companies or individuals are subject to.
A Risk-Based Strategy
A financial institution assesses whether or not it can do business with a company after matching the obtained KYC information with the necessary listings. The entity will be assigned a risk rating based on their chance of passing future KYC checks if they pass the required checks.
A higher level of examination is required when an entity’s risk rating exceeds a financial institution’s predetermined threshold.
The Final Wrap
When implementing an optimal KYC process, you must collaborate with a reputed service provider. Using biometrics, you can collect all the necessary data within minutes and verify and authenticate them for a quick onboarding to give the user access for future operations.