Why KYC and KYC Compliance is Important for New Businesses

 

The internet made it possible for anyone, anywhere, to access financial services at the click of a button and powered economic growth. However, it also fueled financial crimes as bad actors could launch cyber attacks to steal from unsuspecting victims.

To counter this, financial players (fintechs, banks and the like) must verify customer identities before entering any business transaction with them. This is to ensure that they are dealing with people or entities with clean financial records and to prevent their platforms from being used for illegal activities.

This is how Know Your Customer (KYC) was born. Today, KYC procedures have become a legal necessity for financial entities worldwide to verify their customers and ensure they comply with anti-money laundering (AML) regulations. 

KYC processes help companies know who their customers are. They check and confirm customers’ identities. This helps avoid working with illegal or suspicious people or groups, like those involved in crime or money laundering. Banks, financial companies, gaming operators, and others often targeted by fraudsters find this especially important. 

KYC checks stop criminals and help businesses identify and handle possible risks when they bring in new customers. This makes the companies seem more reliable to new customers.

Traditionally, KYC involved in-person meetings, but now many companies are transitioning to electronic Know Your Customer (eKYC) processes, offering convenience for both businesses and customers. However, KYC compliance is no walk in the park, demanding meticulous data assessment and team collaboration.

 

How KYC Aids AML and Why Both are Important

Around 2.7% of the global GDP, which is equal to £616 billion, is thought to be illegally moved every year, according to the Financial Accountability, Transparency and Integrity (FACTI) Panel. That’s why there are strict rules called Anti-Money Laundering laws. These rules ensure businesses know who their customers are to prevent illegal activities.

Checking who your customers are is critical to keeping your business’ reputation. It helps you ensure you are not involved in illegal activities like fraud or terrorism financing. This is especially crucial when dealing with important personnel like government officials, who could be targeted for bribes or corruption.

While the original design of KYC procedures compels businesses to verify their customers’ information before onboarding, prudent companies keep checking customers’ information regularly. This way, they can quickly spot suspicious changes in the financial behaviours of their customers and prevent potential crimes before they occur.

 

Why it’s Important to Comply with KYC Requirements

How crucial is it for your business to comply with KYC regulations? In 2022 alone, financial institutions spent $274.1 billion on financial crime compliance. Those numbers show how strictly FIs keep to KYC rules and are willing to gain customers’ trust and the good books of regulatory authorities.

KYC rules are always getting stricter. So, if your market might have these rules soon, it’s wise to follow them now. It can save you from a lot of trouble later.

To ensure KYC compliance, establish robust internal controls and monitoring systems within your business that promptly identify money laundering threats. Maintaining records of customer due diligence activities for at least five years after a transaction or the termination of a business relationship also helps.

It’s also advisable to document your KYC and AML policy and the controls and procedures for preventing money laundering. This documentation should include details of key employees responsible for managing these processes, aligning with best practices in the industry. 

It can take effort to figure out which rules apply to you when trying to bring in new customers. You want to make sure new customers have an easy time joining while also feeling safe about their money.

The problem is that the rules for checking customers can make the joining process slower. Staff often have to put information into a system or check it by hand each time. This takes time and can lead to human-caused mistakes or misrepresentations with huge legal, financial or reputational consequences.

That’s where KYC automation comes in.

Automating Your Business’ KYC Processes

Automated KYC and AML systems are like security guards in the financial world. They help customers and institutions work together smoothly. KYC is a part of the customer journey, covering everything from getting started to managing accounts, marketing, opening new products, and even handling taxes.

In different countries, there are different rules for knowing your customers (KYC). But most KYC programs have three main parts:

 

  • Checking Who They Are: Making sure people or businesses are who they say they are by comparing their names, addresses, and social security numbers on their IDs with government and other databases.

 

  • Understanding the Customer: Making sure customers follow the rules by looking for illegal activities, checking if they’re on lists of banned people, studying their business reports and news about them, and looking at their past transactions. Banks also have to be careful with people in powerful positions or those doing business in places with more risk of money laundering.

 

  • Keeping an Eye on Them: Always watching customers and their transactions to spot any unusual or suspicious activities that could be risky or fraudulent.

Using automated checks for KYC and AML can help you avoid paper-based checks and lower the risks and costs related to staff. Organisations can automate important tasks, ensuring reliable and efficient handling of data-driven processes, informed business decisions, and regulatory compliance to enhance security and safety for organisations and their customers.

 

Unlock your full KYC Capabilities with Finslack

We’ve seen the importance of KYC compliance and automation to businesses, FIs and their customers. However, many organisations, especially new or evolving financial firms don’t know where to look for their KYC technological solutions. 

With a beyond banking platform like Finslack, you can launch your digital financial product with full KYC/AML capabilities built into your solution. 

Financial businesses partnered with Finslack can orchestrate their systems efficiently by seamlessly integrating with the best-of-breed KYC providers, enabling automatic identity verification, KYC, and AML checks. 

Finslack securely stores all relevant information, ensuring data privacy and compliance with regulatory requirements, offering you the freedom to select or switch service providers and adapt quickly to changing regulations so that you can scale up or down as needed and remain competitive in your market.

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    Процесс изготовления может включать:
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