Customer identification is the most critical part of KYC (Know Your Customer). It is the first step to improving performance in the other phases of the process, which are all crucial in the fight against financial crime and money laundering.
According to the United Nations, criminals are laundering between $1.6 to $4 trillion (between 2 to 5% of global GDP) annually. Stricter KYC/CDD processes are helping to stop that.
Financial institutions’ stakes are very high in light of the current global anti-money laundering (AML) and combating the financing of terrorism (CFT) scenario. Strong directives like AML 4 and 5 and preventative procedures like "KYC" for customer identification have been included in national legislation following international rules inspired by standards like The Financial Action Task Force (FATF).
It's not easy to do the necessary background checks on new hires. Significant financial, time, and resource considerations are involved in deciding whether or not to conduct business with a particular party. Nearly half of those surveyed for Thomson Reuters’ Anti-Money Laundering Report concurred, citing difficulties in verifying data as their primary challenge.
Automation is the most effective strategy for overcoming this barrier. Information and communication technologies have allowed for streamlined procedures for onboarding and verifying customers. For instance, many businesses already have remote identification, automatic document verification, and risk assessment systems.
This article will introduce the Know Your Customer (KYC) concept, contrast a manual KYC process with an automated one, and then describe three scenarios in which KYC automation might be helpful.
Know Your Customer (or Know Your Client) refers to a process wherein you get necessary information about a business's clientele. The Know Your Customer (KYC) procedure involves identifying and validating the client's identification at the time of account establishment and regular intervals afterward.
Compliance with Know Your Customer requirements may aid in the detection and prevention of fraudulent activities such as money laundering, terrorist funding, and other types of unlawful financial activity. To protect themselves against fraud, banks and other financial institutions must conduct client identification checks. When creating a new account, financial institutions must verify the customer's identification and the nature of their business dealings with the institution. That is to say, financial institutions must verify the identity of their customers. If a customer does not fulfill the essential Know Your Customer (KYC) criteria, the bank may refuse to create an account or end their business relationship. In the USA, the Social Security Number (SSN), is used widely for identification and documentation purposes. The Social Security Administration (SSA) provides U.S. citizens, permanent residents, and qualified nonimmigrant employees in the United States with nine-digit Social Security numbers (SSNs). For reporting salaries to the government, keeping track of Social Security payments, and other identifying reasons, the Social Security Administration (SSA) employs Social Security numbers (SSNs). A Social Security Number (SSN) is required for every F and M student who is granted job permission by the U.S. Citizenship and Immigration Services (USCIS).
Documents, data, or information used in Know Your Customer checks come from a third party that has shown to be trustworthy. Every customer has to verify their identity and address with proper documentation. The U.S. Financial Crimes Enforcement Network (FinCEN) imposed a new rule in May 2018 requiring financial institutions to confirm the identities of the beneficial owners, officers, and directors of any new business accounts they create.
The bottom line is that when a corporation creates a new account, it must furnish Social Security numbers and copies of picture identification and passports for each worker, director, and stockholder.
Know your customer (KYC) practices and let your business verify the identity of the people it serves. Your business will be protected from potential scammers while adhering to all applicable regional, national, and international laws and ordinances. Liability, reputational harm, and financial penalties may all be mitigated as a result.
Your company might suffer irreparable harm if your KYC checks are inadequate. A bank, for instance, could let a customer who is engaged in money laundering or using a fraudulent identity create an account. Identity theft, tax evasion, money laundering, fraudulent statements, and so on are just a few of the many forms of fraud that might impact your business. Identity theft and false claims of age are the most prevalent types of fraud.
What exactly are the elements of these fraudulent actions? This is only a quick explanation, so here it is.
Identity fraud refers to the illegal use of someone else's personal information. Common examples of commercial impersonation include making fraudulent credit applications, creating bank accounts for illicit purposes, and submitting fraudulent tax returns.
The legal identification of consumers may be verified with more confidence if businesses use an accurate identity verification as part of their KYC process. Legal and financial concerns may be avoided by not accepting the registration of a client using a false name or identity or papers that have been stolen or are otherwise fraudulent.
Age fraud is when a person, often a juvenile, uses a false identity to get entry to an area or business that requires proof of age, such as one that sells alcohol, cigarettes, or gambling.
Kids may be exposed to inappropriate material or potentially hazardous goods if businesses cannot properly check a customer’s age. What's more, companies might face stiff penalties if they're found guilty. Due to its significance, the KYC procedure must be carefully and thoroughly carried out. Companies' continued reliance on labor-intensive processes (such as manual data input) is unexpected in light of this. Let's take a look at what a classic KYC procedure is like and the difficulties it poses.
In most cases, the Know Your Customer (KYC) procedure begins when a financial institution requests personal and account information from a potential client. Information such as social security numbers, bank account details, and the identity of the "ultimate beneficial owner" (UBO) might fall into this category. Financial statements and other documentation may also be necessary.
The conventional Know Your Customer (KYC) procedure is laborious and time-consuming. Let's look at traditional KYC management processes’ various difficulties and drawbacks.
The Know Your Customer (KYC) process may be streamlined and improved using automation. You'll find a list and descriptions of the most important ones below. It's important to remember that various businesses will discover and enjoy different but equally helpful advantages.
Automating your company's Know Your Customer processes might be a game-changer. The key to maximizing your output is optimizing your efficiency. There isn't a single scenario where KYC automation wouldn't be useful. In the next part, we will examine three typical applications to help you see the potential.
The following four pillars are often included in the framework of banks' KYC policies:
The Federal Reserve and other US authorities released a joint proclamation in November 2018 urging certain financial institutions to experiment with artificial intelligence and digital identification technologies in order to improve their ability to detect and prevent fraud.
Earlier this year, European Supervisory Authorities advocated innovative methods to solve targeted compliance issues. They support a unified strategy to ensure uniformity in EU standards. They expect many forms of regulation, including "a built-in computer program that automatically identifies and validates a person from a digital picture or a video source (facial biometrics)" Alternatively, "an inbuilt security mechanism that may identify photos that are or have been altered with (for example, face morphing) by making such photographs look pixelated or blurry."
Local and regional laws can obstruct the widespread use of biometrics (GDPR in the EU, CCPA in California, to name a few).
With extensive experience in government-level ID verification, we aid private clients by delivering a solution that enables them to meet the new regulations, including CDD (Customer Due Diligence) and KYC (Know Your Customer) requirements.
Identification Authentication aids financial institutions in reducing fraud risk and adhering to Know Your Customer (KYC) guidelines throughout the onboarding process.
Our system promptly and mechanically supplies the following in a couple of seconds:
To sum up, as the system learns and improves over time, your onboarding rate will skyrocket.
Don’t wait. CLICK below to book your demo now. You can also use the link here to reach our contact us page