Where digitization has significantly impacted the business processes and the way business users interact with the prospects and customers, it has been a blessing for the criminals as well. Along with improving the efficiency of business operations and creating value-producing opportunities, it has majorly assisted criminals in money laundering and other financial crimes. The criminals have always sought advanced ways to conceal the original source of their funds and claim them to be legitimate. The practices have been going on for a long but the recent digitization faced by the world has opened advanced tactics to be deployed in this regard.
Considering the rapidly increasing fraud and money laundering cases, the local and global regulatory authorities, including the Financial Action Task Force (FATF), formed the Anti Money Laundering (AML) and Know Your Customer (KYC) regulations. Adequate implementation of these regulations helps a firm fight money laundering and build protection bars against other financial crimes.
Compliance with KYC Protocols
KYC; initials for Know Your Customer are the regulations that verify a customer’s identity and perform a risk assessment. KYC solutions extensive processes of customer ID verification ensure that the firm has detailed knowledge of their clients. Hence, preventing any potential fraudulent activity. Under KYC protocols, the clients are required to provide their detailed financial and personal information that undergoes a thorough verification process to authenticate the identity. The client may be directed to ID authentication via biometric verification or ID card verification. Where these processes authenticate their identity, utility bill verification is commonly used for address authentication.
KYC and AML solutions make the customer go through a critical risk assessment process in order to ensure that he is capable of being linked with the company and can avail of the services. By ensuring that the customers are who they say they are, the companies prevent potential risks. More than any other business sector, financial institutions are more prone to money laundering cases, hence, they have a legal requirement to strictly comply with the AML and KYC regulations.
How do Digital KYC Solutions Work?
The businesses have been observed to rapidly move towards the integration of KYC verification solutions in their security networks. The verification begins during the onboarding process when the customers are required to present their ID cards from which the information is extracted through the Optical Character Recognition technology. The collected data undergo strict scrutiny and is compared to the sanction lists and PEPs (Politically Exposed Person) to make sure that the client does not belong to any of those. Since conducting business with the PEPs is considered a form of corruption, the businesses are extremely cautious about it.
By adequate comparison of the client with the PEP list, the banks and other financial institutions determine the extent to which the client could potentially impose risks on them. During KYC online verification, even if a slight suspicion is detected, the customer is directed to customer due diligence (CDD) as well as enhanced due diligence (EDD) processes that further investigate the odds.
Necessary Documents for KYC
The real-time KYC verification processes perform the significant function of risk elimination and fraud prevention. For that, selfies, ID documents, etc. are verified. The documents include:
- ID cards i.e. documents issued by the government.
- Driver’s Licence
- Social Security Card
- Bank Statements
- Utility Bills
- Housing Contracts
- Rent Agreements
- Employment Documents
Institutions that are Mandated to be KYC Compliant
Even though every single business sector is victim to the criminal’s evil interventions, including cases of money laundering, the financial sector has suffered the most in this regard. Since it deals in huge funds transfers, the criminals find it easier to swoop in their illicitly obtained funds and pose them to be legitimate. Therefore, during account opening and customer onboarding processes, the banks diligently apply the KYC procedures to develop derailed insights into their customer’s prior businesses.
Hence institutions dealing with huge funds transfers are especially mandated by the local and global regulatory authorities to strictly comply with the e-KYC solutions. The following businesses comply with the KYC protocols :
- Credit Unions
- Private Lenders
- Wealth Management Firms
Talking about banks, specifically, they along with being KYC and AML compliant themselves, pass down the mandatory requirements to the companies they conduct businesses with. Modern-day technological advancements and the world’s persistent march towards digitiZation have paved the way for criminals to exploit digital business processes. Hence, adequate compliance with the KYC and AML regulations is the need of the hour.