KYC Banking – Process of Know Your Customer Compliance

Banking is a highly regulated industry and the government is holding it to higher standards considering the KYC (know your customer) regulations. This has a huge impact on users and the banking entity. As a result of this, banks are deploying services to comply with KYC banking to eradicate fraud but it is also the responsibility of every single entity involved in transactions with their business.

KYC banking laws are created to ensure that banks always verify their customers, assess risks appropriately and facilitate customers with no prohibited lists. Moreover, KYC regulations can help combat fraud. Money laundering and financing terrorist activities.

Banks and other financial institutions cannot escape the KYC banking process of identifying customers. On the initial basis, KYC laws were introduced and incorporated in 2001. The law was passed to help avoid terrorist activities. But nowadays, it has become important for every bank to pass KYC checks.

Basics of KYC Banking

The Patriot Act Section introduced KYC laws, including requirements and enforcement to the bank secrecy act 1070. As a result of this act, banks are liable to employ the customer identification program (CIP) and customer due diligence (CDD) in KYC banking.

To meet CIP requirements, they must ask their customers for specific documents related to identifying information. These are the types of information  typically requested:

• Name
• Address
• Date of birth
• Government-issued IDs
• Government-supported identity documents
• Government-issued business licenses

Banks can decide which documents they require when it comes to verifying individuals.

KYC Due Diligence

The next step in KYC banking is KYC due diligence. To comply with due diligence in banking, banks must have an insight into the normal transaction activities of customers. So that whenever they transact other than normal behavior, banks are able to spot or stop them. Furthermore, banks must assign the users high-risk assessment to get to know which customers have the chances of theft and which customer poses threats. New customers can be onboarded as well on the basis of evaluating their high risk.

Difference between KYC and AML

The process of identifying the customers is called know your customer. These are the initial parameters in any business where they can verify individuals coming for onboarding. Catching fake customers at the start can help save a lot of others concerning their threat to banks.

While AML, the acronym for anti-money laundering, is the process that reflects stopping money laundering. Launderers are acting very smartly to undergo money laundering.

Automating KYC banking laws

Modern times require modern solutions to combat crimes. Nowadays, identity verification services are becoming automated to cope up with mobile-driven generations’ needs. Customers are now identified digitally to ensure that no fraudster takes the services of the banking sector and then in return harms the bank itself.

KYC compliance

In KYC banking, it is important to consider that the institution is complying with KYC laws and make sure every stakeholder has done its part. This process includes documenting and securing relevant data of clients, the nature of the transaction they perform, the type and reason of their account, and the source of their funds. If the banks become unable to follow all the things they may risk their reputations, face heavy fines, and may indulge in impossible legal complications.

Identification of customer

This includes obtaining basic information about a client. Depending on the country, some other factors may also be reviewed to check if the customer is included in PEPs or not.

Client Due diligence

CDD is performed to gain customers’ data from reliable and authentic resources. Due diligence financial services also make sure that the nature and reason of the account are checked, and to monitor the transactions performed by the customers are also kept in check.

Enhanced Due Diligence

When the customer is flagged as high risk, enhanced due diligence is performed. In this case, the banks strictly observe the customers. Clients are required to submit more documents and their transaction monitoring is also performed on a strict basis.

All these practices of KYC banking are possible only if the processes are automated. Digital procedures help not only the financial institutions but also assist in keeping the records and funds of customers secure.

Summarising it all

Frauds are inevitable as far as banks and financial institutes are concerned. To deter fraud, the institutions are deploying services of KYC banking in order to mitigate financial threats. KYC compliance can be performed at the time of account opening, monitoring transactions, and more.