What is KYC?
KYC means “Know Your Customer”. It is a due diligence process used by financial institutions to verify customer identity, as well as to assess and monitor customer risk. KYC ensures a customer is who they say they are.
An ample KYC process offers financial companies protection from financial crimes, like money laundering, fraud and identity theft; additionally, it decreases the delays in the customer journey and financial losses. The management of the KYC process is, however, a great challenge if it is done manually.
Why is KYC important in financial institution?
KYC is nowadays a legal requirement for all financial institutions, as well as for financial services entities in order to establish their customers’ identity and detect possible risk factors. As mentioned earlier, the KYC process helps prevent financial crimes. Finance services institutions, including banks, must have strong KYC procedures in place so that they can ensure that their clients are who they say they are and they are not involved in criminal activities or in financing of criminal organizations. The KYC process helps prevent harsh reputational and financial penalties imposed by regulatory bodies. It is imperative to perform background screening procedures on customers in order to diminish and avert fraudulent activities in the financial industry as this is an area with inherent risk of frauds, money laundering and other criminal activities.
How to enhance security and compliance in financial transactions?
Customer Identification (or KYC check), Customer Due Diligence, and ongoing monitoring are essential for the creation and running of an effective KYC process in banks and financial institutions. The Customer Identification requires that financial entities take the appropriate measures to ensure that all customers who enter a formal banking relationship with them are who they say they are. Customer Due Diligence includes facts about a consumer that allow an organization to evaluate whether a customer represents any risk to the institution. The complex KYC process requires the collection of such documents which prove beyond doubt the customers’ identity (government issued identification documents are mandatory); the identity details are screened against sanction lists, political exposure, criminal lists, and untrustworthy customers’ databases. Customers’ profiles and how they will be using their accounts must be assessed and fully understood, as well as the risk associated with a customer’s profile; banks and financial institutions must monitor the transactions performed by their customers to ensure they follow the expected pattern.
What are the objectives of the KYC guidelines?
The objectives of the KYC guidelines are to prevent financial institutions from being used, deliberately or not, for criminal activities like identity theft, financial frauds, money laundering or financing of terrorist activities.
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