Know Your Customer (KYC) refers to the legally set standards that are put into force for safeguarding banks against fraud risks. With corruption, payment scams, money laundering, identity theft, and terrorist funding on the rise, financial institutions are finding it more challenging to place necessary prevention in place. Moreover, KYC verification is a legal requirement and banks can not leave it unattended.
The long-existing KYC methods are outdated and no more reliable in terms of accuracy, crime prevention, and customer monitoring. Therefore, financial institutions require automated IDV solutions to enhance their identification systems. Integrating KYC verification online services empowers banks to validate clients’ identities, perform risk assessments, and authenticate sources of funds. This blog entails how automated know your customer procedures enhances banking operations.
Importance of KYC Verification for Banks
Financial institutions are liable to perform know your customer checks in order to ensure they are not facilitating risk-possessed entities. Fraudsters use a variety of techniques to conceal their proceeds of crimes such as involving third-party payment processors, hiding sources of funds, camouflaging identities, and much more.
In order to counter malicious attempts, banking systems require KYC verification online solutions. Manual financial methods are prone to human errors and are incapable of identifying advanced criminal attacks. Moreover, they pose a high chance of exposing banks to sanctions, non-compliance penalties, and reputational loss. Digital KYC verification services safeguard financial institutions from external breaches. On top of this, banks can prevent cyber security threats and enhance customer safety.
West African Interpol incepted over $1 million from various bank accounts moved by suspects belonging to Black Axe. Similarly, the man from New Jersey will stay in prison for 78 months due to laundering millions of dollars. These instances highlight the vulnerability of banks and their need to enhance KYC processes. Criminals are deploying cunning techniques that make fraud detection somewhat challenging
Considering the increase in criminal efforts, banks need to bring in efficient, cost-effective, and time-saving IDV solutions. Automated KYC verification online services are such reliable methods. They verify customers in real-time and keep track of their activities to detect suspiciousness.
KYC Compliance – Course of Action and Necessary Measures
Authenticating customers, sources of funds, and risk factors are the main requisites of a KYC compliance program. This further involves monitoring clients’ activities and tracking their transactions for suspiciousness detection. This way, banks can stay aware of any criminal activity that is or will be taking place within their systems. Hence, integrating KYC verification online solutions enable financial institutions to stay a leap ahead of fraudsters. As per the legal requirements, know your customer procedures should be in accordance with the following steps:
Customer Identification Program (CIP)
Banks should obtain necessary information from customers prior to account opening for lining out their risk factors as mandated by KYC compliance. Before a client can start using financial services and onboard digital platforms, their accurate identification is a liability. If not most, banks should ask customers for full names, dates of birth, real-time addresses, and social security numbers.
Depending on their jurisdictional requirements, financial institutions need to obtain other Personally Identifiable Information (PII) that varies as per legal AML standards. After submitting the details, banking systems should ask customers for original and government-issued documents. This is the most crucial step in KYC verification online as these papers serve as supporting evidence for identity claims.
KYC verification online systems are capable of accessing global databases which makes identification more accurate. Hence, banks can cross-authenticate clients across various jurisdictions. In order to ensure more security, the KYC online verification system asks customers to upload real-time selfies for facial recognition. This way, banks can further ensure the presence of users at time of account opening.
Types of Review Processes
The next crucial measure in the KYC verification online process is CDD which refers to the risk assessment of clients. It has three levels depending on the legal requirements and existing fraud risks:
Simplified Due Diligence (SDD)
SDD is the level of due diligence applicable to customers that pose less risk of money laundering or other criminal intentions.
Enhanced Due Diligence (EDD)
Customers posing a high risk of money laundering or other financial crimes are detained under EDD. This level aids in enhancing digital KYC verification processes by providing cross-client checks across sanctions, adverse media, Politically Exposed Persons (PEPs), and global watchlists.
Customer Due Diligence (CDD)
CDD is the general KYC verification online process that banks use for every customer opting to open an account and avail banking services. It further involves all procedures that financial institutions use to verify clients whether it is risk assessment,pmkisan gov in kyc,background checks, or ongoing monitoring.
In a Nutshell
KYC verification online solutions are streamlining banking operations by providing advanced financial technologies to prevent criminal activities. Institutions can authenticate customers by asking for their information, documents, and real-time selfie that are later kept in databases. In return, banks can stay put with kyc full form, KYC verification standards. Furthermore, they can perform ongoing monitoring for future risk mitigation