How do you ensure an efficient KYC process?

What does KYC mean?

KYC (know your customer) is, in all its simplicity, about risk management and about reducing financial crime. It is a key concept in relation to avoiding money laundering and must also ensure that you do business with a criminal. In short, the concept is about knowing your customer both in terms of identity and financial activities, as well as identifying the risk the customer may pose. Establishing effective KYC processes is critical to both complying with the law and ensuring an effective business model within your organization..

What is the difference between KYC and AML?

Both terms are often used in connection with money laundering. However, the two terms have very different meanings.

AML (Anti-money laundering) largely refers to regulation and laws that have the direct aim of combating financial crime.

KYC (know your customer) is the process of verifying the identity of one's customers. The implementation of a KYC process is an example of a requirement set out in AML legislation.

4 steps to an effective KYC process

If your company is a financial institution, you risk being exposed to fines, sanctions or general damage to your reputation if you do business with a person who either launders money or finances terrorism. In addition, an effective KYC process is also a basic practice to protect your own business against fraud and possible losses. In this article, we will cover the four most important steps to ensure an effective KYC process.

1. Identify the customer and understand the nature of your customer's activities

In order to verify and document the customer's identity, you must collect personal information and information about the customer's purpose of using your institution. This applies to both new and existing customers. The amount and type of customer information required depends on whether the customer belongs to a low or high risk group.

How you do this should be recorded in a documented process, where you take into account which risk group the customer belongs to.

2. Establish a standard process for how you obtain, process and store the customer information and assess money laundering risks

How you obtain and handle customer information should be recorded in a documented process. As part of this process, you must establish a customer behavior profile and assess money laundering risks based on the profile. In addition, you must monitor transactions depending on which risk group the customer belongs to. Paying particular attention to large cash transactions is important.

3. Use a GDPR-safe IT system to obtain and store information

How is a check of the customer's identity carried out? When you need to check your customer's identity, you can use digital solutions, such as Addo Sign, where you can get your customer to fill in their information through secure forms. Depending on the assessed risk of the customer, the control of the information is carried out with either stricter or relaxed procedures.

The information provided by the customer must be verified via a reliable and independent source. For example, when the customer has submitted his CVR number, you can verify the information against the CVR register directly in Addo Sign, so that you can already check the identity here. If it concerns private customers, the customer's CPR number should be verified either by passport, address or name. In the case of stricter procedures, it will often be a requirement that the customer must appear physically.

4. Check the customer's identity

You must both carry out checks on the customer's identity for all new customer relationships and if there are changes in the customer's circumstances. For high-risk customers, the procedure can be repeated once a year, whereas for low-risk customers, you can do it every five years.

Contact us, if you need help digitizing the collection of your customer information for the KYC process.

Benefits and purposes of KYC (and AML) compliance

FRAUD PREVENTION

One of the main reasons why companies conduct KYC screening of their customers is to prevent fraud. Fake or stolen identities are used by fraudsters to conduct their illegal activities anonymously. Some of the most common frauds against businesses are account takeover fraud, money laundering, terrorist financing, phishing scams, etc. KYC and AML compliance helps businesses with effective risk management. Once the risk is identified, KYC verification helps ensure the smooth and thorough implementation of fraud prevention measures.

COMPLIANCE WITH THE LEGISLATION

KYC and AML are not limited to developed and prosperous countries. Global regulators are expanding the scope of KYC and AML regulations to eliminate money laundering on a global scale. Most countries have their own KYC and AML regulations and regulatory authorities that strictly enforce them. The regulatory authorities have the right to impose heavy fines on the reporting entities in case of non-compliance. Adherence to KYC and AML practices helps companies prevent such sanctions.

SECURE CUSTOMER CREATION AND CUSTOMER RETENTION

Complying with KYC requirements helps businesses develop a secure customer base. Screening the customers before onboarding shows that the company is committed to securing the interests of all stakeholders. Carrying out KYC and AML screening of customers sends a positive message to customers that you have them covered against fraudsters. Showing your concern for security through visible security protocols helps retain customers.

CREDIBILITY AND GROWTH

KYC and AML compliance helps organizations gain credibility and market value. On the other hand, failure to comply with KYC rules will leave loopholes for fraudsters to exploit. In the event of non-compliance, companies risk not only losing profits, but in some cases also losing their creditworthiness. So KYC compliance helps to achieve sustained growth as KYC verification helps to get only legitimate customers into the business. Furthermore, customers stay for a long time if the company offers good security protocols.

REAL-TIME KYC: AN ALL-IN-ONE SOLUTION

Real-time KYC is when customers are verified in real-time via the Internet. With real-time KYC and AML screening, customers are verified within a minute without the use of physical document checks. Identity verification is done using face verification, ID card verification, document verification, 2-factor authentication and the like. AML screening is also done along with KYC screening by verifying the end user information with global watch lists, sanctions lists and PEP (politically exposed persons) lists etc. So it helps the companies to eliminate a big risk in a short time.