KYC Regulation: A Fight Against Money Laundering

Technology is facilitating a landscape in the digital era. However, the number of money launders and financial terrorists is on the rise. Since the start of the century, a transformation has occurred in both digitalization and cybercrimes. Hackers are active in the use of fake IDs and performing illicit actions.

Most commonly, fraudsters are active in money laundering and illicit transactions in online banking systems. Online transactions and banking are at stake for scamming and financial terrorism. Therefore, banks and other financial organizations must comply with KYC regulations to keep the fraudsters away, keeping online banking safe. Hence, firms can use KYC solutions to combat rising fraud. 

Why Does a Bank Need KYC Compliance?

Banks are instructed to access their customer’s identities to know their monetary sources and to comply with anti-money laundering rules. KYC obedience makes banks conscious of their customers and makes them secure from money laundering and other financial terrorism. Without KYC, banks might suffer heavy punishments and an ill reputation for being doubted of being involved in illegal activities. So, KYC is a basic process to make banking safe and sound from any deception or other misfortune. It builds a reliable environment for successful legal transactions and exchanges. Moreover, different KYC verification processes are utilized to authenticate customers

How Does the KYC Verification Process Work?

In order to fulfill KYC regulations, businesses need to determine their customer while onboarding. Banks are particularly required to know their customers for KYC authentication. KYC compliance includes verifications of ID cards, educational documents, biometric face scans, and utility bills. Money laundering and fraud risks are eliminated while having KYC compliance customers on board. The following stages are obeyed in order to meet KYC authentication.

  • Collection of Information

Necessary personal information is collected from the client, usually in account registration and for sign-up. 

Documents for Proof 

While onboarding, clients are asked to upload specific documents as proof of information they provided. The proof varies as per information such as utility bill for address proof, ID card as name, and gender proof. It validates whether the user-provided information is authentic or not.

Verification of Information

Customers-provided documents are verified via AI-based tools such as OCR is used for data extraction to check the authenticity. Electronic Identity verification (EIDV) solutions are used for automated KYC verification.

Customer Identification Program (CIP)

CIP is employed to ensure that the client making the transaction is confirmed. It is the basic step for (Anti Money Laundering) AML KYC regulation to protect financial institutions from any kind of terrorist attacks and money laundering. CIP includes address, name, DOB, and Identity number. It allows banks to have a risk assessment to process (CDD)Customer Due diligence or (EDD) Enhance Due Diligence as per risk profile. 

Key Benefits of KYC Regulations for Banks

Following are some of the key benefits of employing KYC regulations in banks: 

  • Establishes credibility among customers and organization
  • Prevents financial crimes such as tax invasion, money laundering, and corruption
  • Protects to have failed onboarding experience
  • Based on automated and quick solutions.
  • Make verification easy across geographical boundaries 
  • Allows to maintain reputation with authentic clients

Other Financial Institutions that Use KYC Procedures 

Insurance companies, brokerage firms, mortgage companies, and various loan companies use KYC in order to have additional security layers to their operations. Therefore, their institute would deal with only authentic clients and would not have to face any risk.

Other than financial institutions, companies use KYC regulations to verify their customers while dealing with them to mitigate every kind of future risk. Moreover, it ensures that their customers are reliable and allows them to access their risk profiles.KYC compliance allows institutions to have fast and secure customers on board.  

Automated KYC Verification

Artificial intelligence and Machine learning-based solutions are used to detect risks and frauds.  Advanced technologies are more effective than manual processes in the reduction of financial crimes and security risks. Such as optical character recognition, liveliness detection, ID verification, biometric face scan, and enhanced due diligence, possessed with AI solution that detects fraudsters even for minor variation during verification. Automated KYC solutions are responsible for quick and more accurate results in identity verification to confirm the authenticity of individuals.  

Conclusion

KYC regulations are used by every financial institution to make them secure, KYC is employed in banking to prevent any kind of financial terrorism. Advanced AI-based and machine-learning models are employed in order to carry out the KYC process to meet authentic clients on board. It allows to access the client’s risk profile as well for further processing such as CDD(Customer due diligence) or EDD (enhanced due diligence). The automated KYC verification process provides very quick and accurate results. Moreover, organizations can expand more successfully by being reliable with KYC processes.