Know Your Customer (KYC) is a crucial component of today’s battle against money laundering and financial fraud. Customer verification is essential since it is the initial step toward improving performance at subsequent phases of the process. Financial institutions face enormous risks due to international anti-money laundering and combating the funding of terrorism (CFT) landscapes.

KYC, or know your customer, is a required procedure for identifying and confirming a client’s identity when they open an account and frequently thereafter. In other terms, banks must verify that their clientele is who they say they are. If a customer does not comply with basic KYC standards, banks may refuse to create an account or terminate a business relationship.

Why is the KYC procedure critical?

Bank-defined KYC processes entail all steps necessary to verify the legitimacy of their clients, identify risks, and monitor compliance. These client onboarding procedures aid in preventing and detecting money laundering, terrorism funding, and other forms of unlawful corruption.

The KYC procedure entails verifying an individual’s identification card, verifying their face, verifying documents such as utility receipts as evidence of address, and verifying their biometrics. To combat fraud, banks must adhere to Know Your Customer (KYC) and anti-money laundering rules. Banks are responsible for KYC compliance. In the event of non-compliance, severe fines may be imposed.

Traditionally used KYC procedures.

Financial institutions begin the KYC process by requesting general details about company operations and people from clients. It contains the directors’ names, business locations, social security numbers or national insurance, and company numbers, among other information. This information is complemented by information about the publicly available entity through various sources, such as contact details, registration numbers, stock market listings, and financial statements.

The KYC data is then matched to a database of known persons and organisations to government agencies and law enforcement authorities. The lists serve a variety of purposes:

  • To identify persons accused of illegal activity.
  • To specify which jurisdictions’ international sanctions apply to businesses or persons.
  • To gather intelligence on companies and people accused of extortion or laundering money.
  • To Identify Individuals Who Are Politically Exposed (PEPs)

What information does the client have to provide throughout the onboarding process?

To comply with these KYC standards, financial institutions must collect and verify identification information at the time of customer onboarding. The criteria differ according to whether an individual or a company is opening the account.

Individual clients who approach a bank in person will carry identification from the government (e.g., driver’s license or passport), proof of address, and any other documentation necessary for the transaction. The banker verifies the customer’s identification to ensure that they truly are who they are. Additional information proving the beneficial owners’ identity (for example, articles of incorporation) and company operations (e.g., profit and loss records) is necessary for business accounts.

When clients open accounts online, these processes become far more complicated. Financial companies must now verify that clients’ digital identities correspond to their physical identities. Establishing a trustworthy connection between an online identity and a real person requires a comprehensive identity verification procedure that verifies the person is who they claim to be and monitors for any questionable behaviour. This approach may include biometrics (e.g., face recognition, fingerprints), machine learning, or document or identification verification.

This complex mix of verifying an individual’s identity, binding that individual to facial recognition, and further protecting the operation with accredited liveness detection enables banks and financial institutions to function more efficiently and comply with a plethora of regulations issued by their governments.