What is KYC? How Financial Entities Achieve Compliance Standards

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Today’s technologically paced world is full of bad actors who are in pursuit of hijacking the identity of online users. The use of advanced methods by cybercriminals to outsmart verification procedures is allowing identity theft instances to grow at a rapid pace. Financial institutions, especially banking firms need to be one step ahead of fraudulent figures to make sure their customers enjoy a secure banking experience. In this regard, Know Your Customer (KYC) policies and procedures play a vital role in ensuring customer safety and catching fraudsters off-guard. 

For financial entities, KYC is a mandatory check to maintain effective Anti Money Laundering compliance. This way, KYC verification of onboarding users identifies if they are actually who they claim to be, ultimately preventing cybercriminals from associating ties with businesses. 

What is KYC in Banking?

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Know Your Customer is a collection of customer verification practices like document verification adopted by banks and other financial organizations to prevent financial crime. Banks usually acquire identity information of customers and verify them against pre-defined criteria based on regulatory compliance standards. A KYC process allows banks to measure the nature of risk a particular customer represents. 

What Benefits Does KYC Compliance Offer?

An entity (bank, financial organization, or enterprise) may need KYC compliance to create transparency in its business relationships. It doesn’t matter if the entity being verified is a customer or a business partner, KYC verification addresses the problem of both. 

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It Builds your Brand Image

Being known as a company/organization that is compliant with KYC requirements adds credibility to the business profile and helps customers find trusted businesses.

Customers Enjoy a Secure Experience

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KYC Due Diligence procedures allow legitimate users to onboard with ease and keeps off fraudsters from stealing personally identifiable information of trusted clients. This helps enterprises deliver a flawless experience to their users without a hint of doubt.

Combating Financial Crime

Since KYC already verifies only real users, it directly is a tool to prevent bad actors looking to commit financial crimes such as money laundering, etc. Criminal figures selling fake Initial Coin Offerings (ICOs) can also be taken down by investing in KYC verification solutions. 

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One step ahead of Manual Verification

Without a doubt, manually identifying and then verifying a customer’s identity information is one big hassle for banks. To address this problem, financial institutions now incorporate automated KYC verification software to breeze through customer onboarding processes. Automated KYC comes with two advantages: 

(i) It does not require investing in manual audit teams 

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(ii) Is cost-effective since overhead per verification is significantly reduced

(iii) Error-free verification without human negligence

What is KYC in Banking?

Banks invest a good amount of their budget in maintaining KYC compliance standards. Here are some steps that banks usually incorporate in their KYC verification requirements:

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Customer Identification Program 

A Customer Identification Program (CIP) allows banks and financial corporations to collect the necessary data required to validate a customer’s authenticity. This identification information is also sometimes referred to as a Know Your Customer Program with the main purpose of collecting personally identifiable information of the client (customer or business entity). There exist some mandatory requirements to complete the CIP which are different depending upon the type of customer

For Customers

For customers, usually, the Name, Address, Date of Birth, and a particular identification number are recorded as a compulsory requirement towards completing the CIP.

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For Businesses

When it comes to acquiring verification details from partner entities, corporation date, the company registration number, and details about the beneficial owners are usually what is considered most important.

What are the FinCEN’s Criteria for KYC?

Here are the four things that the Financial Crimes Enforcement Network describes as an essential part of the KYC verification process:

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  • Identity verification of end-users must be performed during customer onboarding
  • Identifying information regarding beneficial owners and their corporations
  • Performing risk assessment on potential customers and creating their risk profiles

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