The world is transforming at an accelerated pace, and it never looks back. The previous two decades have seen tremendous changes, the mobile phone being the most significant one.

With time the ways of frauds and crimes have also been modified. The ultimate objective of any fraud be it theft, blackmail or corruption is financial benefits. As banks trade with the money directly, they are the primary target of crimes. This has increased the call for KYC in banking or simply KYC banking.

Digital banking or internet banking becomes the victim of fraud mostly. The use of digital banking services has increased in recent years, also COVID-19 has stimulated the speed. Banking apps, digital payment transfer channels, and online transactions are disrupted by criminals. They use fake and stolen IDs to register themselves as legitimate customers and proceed with their illegal activities there. This can be controlled to the minimum level by incorporating the KYC banking solution.

What is KYC Verification? A Brief Analysis

KYC short form of Know Your Customer is a process of ID verification of online users or customers. It is an online method conducted by software remotely. It eradicates the need for scheduling customer visits for verification. Today the KYC solution is available by third-party service providers. It is integrated into a business’s website or mobile app through APIs.

Manually conducting KYC can be costly and tedious. Banks deal with thousands of new customers on a daily basis and employing humans for verification is not feasible. There is also a huge burden of paperwork on banks, managing them could be a hectic task. The manual verification is not accurate and often produces erroneous results.

All the new customers will be verified by presenting their ID proofs to the system. The KYC (Know Your Customer) solution will conduct document verification on the ID proof. The signs of originality of government-issued ID documents will be checked. Holograms, rainbow marks, and MRZ will be examined. It will be confirmed that it is really an authentic document. A live selfie will be clicked and cross-checked with the photo ID. Lastly, the dob and address will be extracted and validated. In identity proofing, age and address verification play a critical role.

Stats show that verifying addresses causes a reduction in the cases of crimes. If someone initiates a fraud, it will be easy for the police to catch him through an accurate address. Giving an incorrect DOB is a very common practice for committing scams through fake IDs. Age verification will help in having authentic and genuine customers onboard.

KYC Banking

What are the Resurrections of Avoiding KYC?

To cover financial crimes like money laundering and identity theft, a law was passed by the US government in 1970 named as Bank Secrecy Act (BSA). The law obliges banks to verify their customers’ identities and maintain a database of them.

Now there are global and local regulators that have mandated KYC for banks. The famous financial regulators are FinCEN, FINTRAC, FINMA, FATA, and Europol. Additionally, the central or state banks of countries are responsible for making a crime-free environment within their jurisdictions. They oversee banks for compliance with KYC/AML regulations. While FATF is a global watchdog that checks the AML program of its member countries. It puts countries in graylists and blacklists over weak compliance with AML rules and practices.

If a bank has weak KYC and AML regulations, it can be fined. According to ComplianceWeek, financial service providers faced fines worth USD 10.4 billion in 2020.

Not only banks but cryptocurrency exchanges are also going to be regulated with KYC and AML.

KYC Requirements for Banks

  • Identifying customer through their PII (Personally Identifiable Information) and confirming the information by government-issued documents or data collected from trustworthy and independent sources
  • Identification of the UBOs and analyzing their risk-level
  • Conducting EDD on PEPs and potential criminals, the source of their funds should be examined

In a Nutshell

To stay compliant with KYC regulations and protect the customers from fraud a KYC solution is inevitable. It will give security to customer funds and market goodwill to the banking services.

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