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KYC Verification – Mitigating Identify Theft Risk in Businesses


KYC verification is necessary for the success of any organization that has to deal with a large volume of customer data. According to the U.N., money laundering amounts to 2 to 5% of the global GDP, nearly 800$ Billion, even with strict enforcement of Anti-Money Laundering (AML) and other regulations worldwide. 

Over the past few decades, regulatory bodies have emphasized the significance of implementing KYC checks for client verification in fighting Terrorism Financing (TF) and Money Laundering (ML). These bodies expect financial organizations to comply. Independent regulatory bodies and governments impose heavy fines, as high as $26 Billion, on financial institutes for AML and other violations.

Digging Deeper into the KYC Verification 

Online KYC verification refers to the process that financial institutes, such as FinTech companies and banks, adhere to authenticate client identities. As a result, KYC services help companies avoid hefty fines while meeting regulatory requirements. The specific documentation and information requested by financial institutes vary depending on elements, including the geographical location and risk linked with the consumer. 

Although the underlying objective of online KYC solutions remains constant across the board:

  • To prevent any illegal activities
  • To validate the consumer intentions

What is the KYC Verification Process in FinTech and Banking? 

KYC verification is becoming essential for financial firms and banks to restrict malicious activities in their business operations. Moreover, it provides certain additional advantages to these companies in addition to its role in stopping financial crimes, including:

  • Verify consumer identity
  • Comprehend client activity and ensure its integrity
  • Validate the credibility of the client’s fund sources
  • Evaluate the risk linked to the client
  • Ensure adherence to regulations during the onboarding procedure and transactions. 

A complete KYC authentication procedure encompasses the following features:

  1. Customer Identification Program
  2. Customer Due Diligence
  3. Ongoing Monitoring
  • Customer Identification Program (CIP)

The client identification program plays an immense role in the banking industry by helping verify clients’ identities. It serves as the essential basis for a robust KYC verification process. When users open a new account, they should furnish the essential information required by law, such as their name, address, and DOB. Moreover, they need to offer supporting documentation that validates the accuracy of the provided data. Financial organizations are responsible for verifying and validating this data to ensure its credibility. Financial organizations execute a CIP that includes: 

  • ‍ID Verification
  • Facial Recognition
  • Email Verification
  • Phone Verification
  • KYC Document Requirements 

KYC identity verification requirements vary depending on the risk profile of the customer. These essentials can manage a broad range of documents that range from the client’s driver’s license, passport, and utility bills to a detailed transactional history of the organization or history. However, clients must complete a few minimum KYC document requirements. These requirements usually involve: 

  • Full name
  • Address information
  • Date and place of birth
  • Identification number

The fewer KYC document requirements for organizations are: 

  • Company name
  • Business address
  • Ultimate Beneficial Ownership (UBO) details
  • Company registration number (CRN)
  • Corporation date and issuance documents
  • Customer Due Diligence (CDD)

CDD is an essential procedure that empowers evaluating the risk a client can pose to any organization. By executing a straightforward CDD protocol, businesses can quickly secure their reputations against terrorists, criminals, and Politically Exposed Persons (PEPs). CDD consists of two levels: 

  • Enhanced Due Diligence

This due diligence level is scheduled for higher-risk clients, enabling a complete assessment of risks based on their social standing and transaction history. 

  • Simplified Due Diligence

This level is usually employed for accounts with low-risk profiles, but the chances of terrorist financing and money laundering are minimal. 

It’s the responsibility of the financial organization to decide the suitable level of due diligence requirements for every customer. To ensure a complete technique, the financial organization must develop a comprehensive and step-by-step methodology that includes the following: 

  • ‍AML Watchlists Screening
  • ‍Customer Income Verification
  • ‍Bank Account Verification
  • ‍Criminal and Legal Records Check
  • Ongoing Monitoring

Some customers present a low risk of transitioning into high-risk clients. This shift can be due to diverse factors, including changes in location, profession, transaction behavior, and any other suspicious activity. To know about these changes, it is helpful for financial institutes to monitor customer activity regularly. 

Based on the client’s risk profile and the rules of the financial institutions, risk indicators include suspicious economic activity. Institutes must take further measures, including suspicious activity reports (SAR). By adhering to KYC verification laws and enforcing internal controls and systems, it’s possible to recognize and address illegal activities instantly.  

Key Takeaways 

Implementing effective KYC verification practices is essential for the financial organization’s success. Moreover, it validates client identities and intentions, targeting to stop illegal activities linked to financial matters. Moreover, by prioritizing efficient KYC & AML verification processes, financial companies secure themselves and contribute to the global effort to fight against terrorism financing and money laundering. 


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