Regulating KYC Compliance | A Proactive Approach for Business Development

KYC compliance has streamlined the processes of the systems working online in this digital landscape. By complying with the regulatory measures of KYC, the integrity and reliability of the working framework are enhanced. The advanced procedures of KYC employ machine learning algorithms to identify unusual activities in real time, thus providing efficient and accurate results. In a survey conducted in March 2019,  it was reported that 53 percent of respondents globally check for KYC when establishing external relationships to verify their user’s identities. Only 27% also confirmed looking into the ultimate beneficial ownership status.

The KYC Compliance form is crucial for investment advisors by providing detailed information about clients’ risk tolerance and financial position.

Understand KYC AML Compliance – A Quick Overview

The U.S. Department of Financial Crimes Enforcement Network (FinCEN) enforces both users and financial institutes to meet KYC rules to combat illicit activities, particularly terrorist financing and money laundering. KYC is a major element of AML. It is considered the regulatory body mainly designed to mitigate the potential threats of monetary losses such as money laundering.

FinCEN needs financial institutes to comprehend the different kinds and main aims of the user relationship and assign a risk score according to analysis. It acts as a foundation for identifying the illegal activities of potential consumers.

Bank institutions should uphold current users’ credentials and conduct ongoing monitoring of the financial accounts to identify illicit transactions.

KYC Compliance Process – Ensure Reliability between Users and Enterprises

KYC compliance is the regulatory body created to enhance the integrity of the system and secure the customer’s credentials in real-time. It constitutes three major elements, which are explained below:

Customer Identification Program (CIP)

In the U.S., CIP demands that any user executing financial transactions get their identities verified first. The main aim of CIP is to mitigate the chances of illicit funds transfers such as money laundering and terrorist financing. A critical element of successful CIP is conducting risk scores during account creation and at the institutional level. The credentials required for creating a financial account are given below:

  • Full name
  • Identification number
  • Date of Birth (DoB)
  • Current physical address details

The credentials of the account holder should be verified at a specific time when creating a new profile setup. The proceedings of identity authentication involve documents, non-documents procedures, and a combination of both. Non-documentary procedures involve differentiating the credentials provided by users from the authorized databases.

These particular rules vary depending upon the institution’s risk-based approach and may take into account the following:

  • Different profiles provided by the bank
  • The bank’s procedures for account opening
  • The available forms of identification
  • The bank’s scale, geographic location, and customer demographics encompass the range of products and services utilized by customers across different regions.

Customer Due Diligence

Customer due diligence is conducted to determine the potential clients, further analyzing the risk score associated with the customer profile and Politically Exposed Persons (PEPs) at the edge of risk. There are three prominent variations of customer due diligence explained below:

  • Simplified Due Diligence (SDD) is required in situations where the risks of money laundering and terrorist financing are low and complete customer due diligence is not mandatory.

  • Basic Customer Due Diligence (CDD) is required for all customers to verify their identities and scrutinize the associated risks.

  • Enhanced Due Diligence (EDD) is the additional credential required for customers acquiring high-risk scores for a comprehensive investigation to understand the customer’s financial transactions.

Considerations for assessing the need for Enhanced Due Diligence (EDD) are the following:

  • Geographic location of the customers
  • The professional role of the customers
  • The nature of the transactions involved
  • Unusual activity patterns regarding transaction and monetary amounts
  • Illegal payment methods

Ongoing Monitoring

The ongoing monitoring helps in the continuous surveillance of funds transactions and profiles according to the thresholds created as a segment of the customer risk profile.

Based on the customer profile and your risk management approach, additional aspects to keep watch on could be:

  • Surges in activity levels
  • Out-of-region transactions
  • Individuals listed on sanction registries
  • Adverse publicity or mentions in media sources

KYC Compliance for Banks – Gains Beyond the Edge

KYC compliance for banks ensures regulatory adherence and offers significant benefits beyond legal compliance. By actively following the kyc process, banks gain a deeper understanding of their customers and make them execute their services more effectively. This proactive approach enhances client trust and loyalty by improving customer retention to enhance brand reputation. KYC compliance helps banks mitigate risks associated with financial crimes such as money laundering and fraud and protects the institution and its customers.

Final Verdict

KYC compliance is a regulatory obligation and a strategic imperative for businesses across industries. By thoroughly verifying the identities of customers, companies can mitigate the risks of fraud, money laundering, and other financial crimes. This protects the company’s assets and builds customer trust, which leads to stronger relationships and increased reliability. Additionally, compliance KYC enables businesses to make more informed decisions by understanding their customers’ financial behaviors and risk profiles.

Leave a Reply

Your email address will not be published. Required fields are marked *