Know Your Client, or KYC is one of the biggest difficulties that businesses and institutions in any sector must deal with because of its significance in regard to customer onboarding, its connection to identity fraud and AML controls, as well as its legal standards. Because of this, an increasing number of businesses are investing in KYC software that satisfies the standards established by the various KYC compliance legislation.
What exactly does KYC mean? Know Your Customer is the complete form of the term. In accordance with legal requirements and current laws and regulations like AML, GDPR, and eIDAS, it is a practice carried out by businesses to confirm the identification of their clients.
It is vital to create standards that aid in the fight against online fraud due to the widespread usage of new technologies and the internet. Because of this, any type of business that wants to sign up a user as a customer must comply with the legal and international requirements by following the KYC method.
Although it affects many industries and is required for delicate procedures in all of them, it is particularly important in the financial and banking sectors as well as closely connected ones like insurance, real estate, or, for instance, trading and cryptocurrencies.
Given the health crisis that the entire world has been dealing with since 2020, many businesses have been obliged to set up KYC processes online and remotely in order to continue operating despite any potential legal constraints that would prevent offline onboarding.
Having a long-term Know Your Customer partner now can mean the difference between a successful business and one doomed to failure, even though digital KYC processes have been a reality for years and the leading-sector companies already had KYC partners for their customer acquisition processes who were working to optimise their processes and reduce their acquisition costs.
How Does The KYC Process Work?
KYC refers to the process of identifying and verifying a client’s identity, during which a number of controls are used to prevent dealings with individuals who are connected to terrorism, corruption, or money laundering, among other things.
The KYC procedure entails confirming that the client is indeed who they claim to be before granting them access to the services or goods they need. Different techniques are used to carry out this verification, albeit not all of them abide by the law.
Various regulatory organisations set a number of Know Your Customer standards. Among the KYC criteria are:
Proof of address document
The Know Your Customer or Know Your Client process can be completed in person at a business office or store or remotely online. We refer to the eKYC (electronic Know Your Customer) process when it is carried out remotely and online or when the procedure has been digitised.
What is KYC verification? Verifying a customer’s identity in order to abide by Know Your Customer laws is known as the verification process.
Every time a client opens an account and on an ongoing basis after that, their identities are verified as part of the KYC or KYC check procedure.
The following 3 steps must be carried out by Know Your Company procedures in order to obtain KYC compliance:
Clearly establish the customer’s identity.
To ensure that the customer’s activities are legal, understand their nature.
Assess the customer’s potential for money laundering.
Companies can accomplish this by integrating KYC protocols in accordance with all relevant legal requirements. To do this, they need to use identity-proofing software that complies with legal requirements, a programme for conducting customer due diligence, and ongoing data and customer activity monitoring.
KYC Compliance in the World
Due to the low level of technical security, the fragility of electronic evidence, and the lack of its integrity, the KYC process mandates that the financial sector abides by its regulations on a global scale. This implies that identification through selfies or images is invalid for financial transactions.
As a result, the level of security offered by these kinds of solutions is minimal and well below the security requirements set forth by the most stringent laws in this field for formal client identification.
European KYC Regulation
Together with eIDAS, AML5 (or 5AMLD) defines the regulatory framework for the financial sectors in Europe and introduces fully secure digital identification methods for the first time in history, enabling customers to interact with their bank, insurance company, administration, etc. entirely remotely.
In order to close any gaps in the national legislation of member states, the concept of money laundering has been unified throughout the EU as part of the recently revised 6th AML directive. A list of the 22 predicate offences involved in money laundering, which includes tax crimes, environmental crimes, and cybercrime money laundering, is provided. This list provides a more thorough explanation of how the 6AMLD reflects the evolving approaches to criminal investigation and legislative priorities.
Due to QES+ onboarding’s full KYC compliance, businesses may now recruit consumers in any nation in Europe, inside a 508 million-strong open and homogenous market, with only a single click.
KYC Benefits and Advantages
The most cutting-edge artificial intelligence technologies have completely transformed and digitalised onboarding procedures, removing all friction and obstacles for users to access remote contracting of goods and services in a perfectly safe manner across all industries, not just in banking.
Not every Know Your Customer service provider has modern methods and equipment installed in their systems. Because of this, it’s critical to rely on complete KYC solutions that support both the organisation and the user throughout the onboarding process and subsequent authentication requirements with the greatest level of legal and technical assurances.
If not, it’s highly likely that the solution falls short of meeting all legal requirements and doesn’t offer the benefits that should come from integrating this procedure. It’s critical to improve user experience and adhere to a quality process.