You might have heard about Know Your Customer (KYC) procedures and wondered how they work. It’s essential to know KYC is a legal requirement to comply with Anti-Money Laundering (AML) laws. Getting it right helps to protect everybody in your business and also your customers.
The financial services industry is an example where knowing the real identity of users is critical. This article will explain what KYC is and how it affects your business. You can then incorporate KYC practices in your business to help protect your company.
What Does KYC Mean?
KYC is the process that companies use to verify the identity of somebody. This verification process is essential during the client onboarding stage.
The KYC process can help companies protect themselves from fraudulent transactions. Without a process in place, a company is placing itself in harm’s way.
Cyber threats are real, and cybercriminals are becoming more clever by the day. KYC procedures are the perfect countermeasure against cyber threats. Customers might find it time-consuming, but at the end of the day, it helps to protect everybody.
Who Needs KYC?
KYC is one of several AML mechanisms companies can install to meet regulatory compliance requirements. After the US Patriot Act of 2001, AML and KYB procedures became compulsory for US banks.
More recently, these regulations have extended into other industries. It is not only the banks that have to ensure they are compliant. Different service providers now use KYC checks in areas such as:
- Registering users
- Updating records
- Processing large transactions
- Changes to authentication systems
Any financial institution dealing with customers that open or maintain accounts needs to use KYC checks. For example, banks, credit unions, fintech apps, private lenders, and wealth management companies.
What Are KYC Requirements?
KYC requirements are certainly strict but are absolutely necessary. These requirements can help to minimize fraud early on in a client-business relationship. For a company’s KYC procedures to be effective, they must be able to handle these three key areas:
- Correctly identify the person who is interacting with you
- Understand their financial activities and determine if their money is legitimate
- Have an understanding of the risk they may pose to your company
There are two basic types of documentation that are mandatory for KYC – proof of identity with a photo and proof of address. These documents are now always required when somebody opens an account.
What Are The Triggers For KYC?
Ongoing management and due diligence can help to identify problems. When somebody is deemed a “high-risk”, the account is closely monitored.
The person may also have to present further data to verify their identity. Sometimes this can upset clients, however, it is ultimately in their interests as well, and protects them from attack.
Here are a few common triggers that can set the alarm bells ringing for financial institutions:
- Adding new people to an account
- Changes in somebody’s business or occupation
- Any unusual transaction activity
Using A Digital Solution for KYC
As you can imagine, manual KYC checks can be time-consuming, especially if you are dealing with many financial transactions on a daily basis.
Using automation can be a gamechanger and help you get a handle on your identity verification demands.
Not only can a digital solution save you time processing KYC checks. It can also help you stay abreast of the latest KYC regulations.
This form of proactive compliance monitoring is the ideal way to stay on top of rules and regulations. You can have peace of mind that you will always meet the regulators’ demands.
Protect Your Business And Improve Other Business Processes
There’s no need to be scared of using automated systems if you have always done everything manually. In a digital world, it’s the right move for all businesses eventually.
It’s time to forget about what you have “always done”. The time is now to think about the benefits of digital solutions.
Not only can you automate your KYC processes but you can also look to streamline other business processes.
This is the incredible benefit of automation and is rarely possible when you are trying to manage everything manually. Many businesses move to a digital solution and wonder why they didn’t do it sooner.
Start Using Digital KYC Solutions
Not knowing who your customers are can put your business at risk. It is in your best interests to take control of your KYC requirements.
Nobody will take advantage of you if you are clear on your KYC policies. Protecting your business is and always should be a top priority.
Digital KYC solutions can take extra stress away by helping you stay on top of the regulations. You’ll save time, money, and potential fines by going digital.
Take action now to automate your KYC checks and streamline your business. It will protect your company, improve your reputation, and increase your productivity.