KYC: The Primary Step of Anti Money Laundering Compliance

In a world where the internet and mobiles have taken over other means, protecting user data is a crucial task. Online users and their data are valuable to serious crimes. Under the GDPR regulations, all businesses are obliged to guard the data of their customers. So businesses adopted an identity verification method known as know your customer (KYC). It is a solution against online fraud and potential money laundering. 

Know Your Customer: Providing a Relief in Identity Verification

To comply with the online speedy requirement and user demands, the identity verification process needs to be robust. KYC fulfills all the requests by verifying a customer remotely. In traditional identity verification, a person has to visit a business office. For example, while opening a bank account opening, the bank employees have to schedule multiple meetings with the customer. They also have to check the customer’s document manually and take written consent (signature). The process wastes numerous papers and takes days or even a  week for completion. 

From the business side, it takes their huge resources and manual efforts. They have to pay salaries to the employees and arrange a proper environment for the physical meeting. All these complex attempts, it does not guarantee solid protection. Signatures are weak consent proof because they can be duplicated easily. The manual verification is very erroneous because the human eye can spot the modern document tempering endeavors. Today fraudsters use extended photoshop software to create an exact copy of the original document. They also use stolen (original) documents where they temper the name or address creating a fake identity. 

From the customer side, it has the same risks as it has for the businesses. It wastes their time and often results in drop-offs. With the restriction of more than one visit, the meeting sometimes cancels. 

For an organization in the financial industry, the responsibility of KYC further increases. As they deal with customers’ money, they become the primary target of fraud and scams.  The second reason is to control money laundering through their channels. 

Money launderers use financial channels to circulate their illicit funds. For this they fake accounts using synthetic information. These accounts do not have any legitimate owner and thus can’t be traced in any misconduct. 

Funds earned through illegal means are required to be shielded with legal sources so that they can be used in the financial system freely. Ill-gotten money is nearly impossible to use in businesses because it has the highest risk of exposure. Once it gets the attention of the law enforcement agencies, the money launderers will be behind the bars. 

Criminals conceal their earnings with numerous financial transactions. The funds go through the cycle of payment transfers. Sometimes they are also sent to a bank of another state. This is the ideal state for a money launderer where his funds cross the borders. 

All businesses are commanded to adopt the AML/KYC compliance program. If they fail to conduct KYC and anti money laundering, global regulators can fine them. The fines can also be in millions. 

Walkthrough of Know Your Customer (KYC)

  • Let’s understand the working of KYC through an example of online bank account sign-up.
  • Customer onboarding on the website by giving his personal details. His full name, gender, residential address, birth date, and national id number is required at this step
  • Then he uploads his image of holding an identity document in hand. The picture can be clicked through a normal mobile phone
  • The Verification process starts:

Document Verification: it is checked that the identity document is issued by the government or not

Facial Recognition: The similarity between selfie and photo id is marked. The accuracy should exceed the specified limit

Age Verification: The date of birth is extracted from the document and age is calculated. Then it is checked that it falls under the range (mostly 18+) 

In a Nutshell

KYC compliance will help businesses to stop frauds which will result in a secure online environment and greater customer trust. A business can save itself from fines and sanctions by police authorities by implementing KYC services.

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