Those of you who are business owners already know the importance of complying with KYC regulations when establishing the legitimacy of your customer’s identity. Financial organizations always struggle to identify their customers and implement policies to stop financial crime. A significant set of requirements known as KYC for client identity verification must be followed by financial institutions (including banks, credit unions, and Fortune 50 financial businesses). We’ll talk about the KYC standards in the US in this post.
Standard KYC processes often apply when a company onboards a new customer or when a current client purchases a regulated product. Financial services providers, particularly banks and credit unions, as well as asset management companies, broker-dealers, and financial technology applications, are all subject to KYC rules since they deal with money in any way (fintech apps).
What Does KYC Mean?
Financial institutions and other financial services providers employ the Know Your Client (KYC) standard due diligence procedure to evaluate and track customer risk and confirm a customer’s identity. KYC confirms a customer is who they claim to be.
Clients are required to submit documents under KYC that attest to their identity and address. Facial and document verification are all examples of verification credentials. Utility bills are an illustration of acceptable paperwork for address verification.
KYC is a crucial procedure for assessing client risk and deciding if the consumer can fulfill the organization’s requirements to use their services. Additionally, adhering to anti-money laundering (AML) legislation is required by law.
KYC: Origins
In the USA, know your customer (KYC) laws were first implemented in 2001 as a part of the Patriot Act in the wake of 9/11. Prior to the 2000s, KYC procedures were intended to stop money laundering, but everything changed after 9/11. Additionally, operational, legal, and reputational concerns are there for regular businesses due to internet fraud and scams, resulting in astronomical losses. Because of this, regulatory agencies created Know Your Customer procedures to stop fraud and money laundering schemes.
Typically, financial institutions carry out KYC procedures before creating client accounts. Money laundering is a problem that is becoming worse because criminals are always coming up with new, inventive ways to hide their unlawful funding sources.
Illegal sources may come from smuggling, tax evasion, corruption, financing of terrorism, drug trafficking, and more. In order to identify customers and combat money laundering, Know Your Customer processes are therefore generally adopted by enterprises all over the world. Regulation bodies particular to each nation, area, and jurisdiction issue the rules.
By 2024, the internet gambling market, which is expanding quickly, is predicted to be worth over $94 billion in US dollars. Uninterrupted digitalization is one of the causes of this unexpected increase. Businesses and customers alike are finding ease in this ongoing digitization.
For the purpose of risk profiling, the online gambling and gaming sectors are required to confirm the identification of their consumers, including age and address verification. In order to protect gaming and gambling websites from bad actors like fraudsters and to prevent minors from accessing age-restricted platforms or commodities, KYC is required. It offers a safe playing environment, fosters consumer confidence, and aids internet businesses in maintaining compliance, hence preventing non-compliance fines.
Technology improvements have caused notable changes in the travel sector as well. The world’s businesses, including travel, are becoming more technologically advanced. Through effective KYC and AML procedures, travel firms are now able to provide a better consumer experience. Knowing your consumer for identity verification is reducing these dangers to a greater level as a result of technology increases the risk of online fraud.
How Does KYC Work?
Laws and regulations outline the fundamental needs for the KYC procedure. Depending on the business, different KYC standards (such as documentation) must be met, with financial services companies and banks often required to follow the strictest KYC procedures.
Due to the digitization of the KYC process, KYC verification is now done using a variety of techniques or technologies (like NFC or AI), security features (like holograms), and security checks (e.g., biometrics). Methods include Document Verification – The authenticity of the person’s government-issued identification document is checked for. Face verification checks are carried out to confirm the customer’s live presence to detect any spoof assaults in real-time. It can also help verify the customer’s address.
Advantages of KYC
KYC checks are carried out using independent and trustworthy sources of documentation, information, or data. Each client is required to present identification and address proof. For instance, when a corporation creates a new account, it must give the Social Security numbers, copies of passports, and picture IDs of all its owners, board members, and workers.
By evaluating risks, KYC (Know Your Customer) processes seek to aid in the detection and prevention of unlawful activities like money laundering. Banks and other financial institutions must adhere to KYC requirements and follow KYC processes. Banks are solely responsible for adhering to KYC laws, and failure to do so can result in severe consequences.
On the one hand, it safeguards customers’ private information from unauthorized access, while on the other, it shields companies from reputational harm and legal trouble brought on by security breaches and incidents of identity theft. It helps secures the interest of the investment at any cost.
As was previously said, the primary goal of KYC is to stop financial crimes, including money laundering, tax evasion, corruption, and financing of terrorism. Another advantage of KYC is that it stops scammers from executing bogus ICOs. Manual Since the expenses associated with KYC are rather substantial, automating identity verification processes is a positive move. Online KYC verification can replace manual KYC verification, saving time and money. Also, automation and digitalization are decreasing mistakes by lowering human work.
Thanks to KYC procedures, businesses now have the tools to comply with AML regulations and stop fraud across all sectors. Additionally, skilled KYC procedures are carefully carried out throughout customer onboarding to provide a seamless user experience.
