At first, only the financial industry was initially using the KYC compliance process, but over time it became part of the non-financial sector too. This is the identity verification process that a company performs before onboarding a customer. They offer authenticity to their clients by using KYT (Know Your Transaction), KYP (Know Your Player), and KYB (Know Your Business) when working in a variety of industries.
As the world becomes more digital, manuals know your customer processes can no longer be used to ensure KYC compliance. Therefore, businesses are shifting to digital KYC solutions to reduce fraud and criminal activity and better meet global KYC compliance.
What are the Components of KYC Compliance?
When a customer registers online, a KYC compliance check is carried out to identify any potential risks a person might pose to the business. Depending on the customer’s level of risk, there are three different types of know your customer procedures. A politically exposed person, for example, needs more thorough monitoring than a regular account holder with a limited number of transactions.
Due Diligence is an important step to prevent threats by running additional checks to keep the company safe and secure from criminals and bad actors.
1. Customer Due Diligence
This basic KYC compliance process does not require in-depth customer verification. Customer Due Diligence (CDD) is performed for customers not classified in a medium or high-risk profile.
2. Standard Due Diligence
Businesses perform KYC compliance procedures on government and non-official entities with low- or medium-risk profiles. Countries have different laws and policies. Therefore, the timing of standard due diligence (SDD) varies from country to country.
3. Enhanced Due Diligence
Unlike CDD and SDD, this analyses high-risk profiles to eliminate corruption, money laundering, and terrorist financing. Businesses also use EDD against the ultimate beneficiary of a company to ensure that they are not on a sanction list to prevent the company from taking action against such fraudsters. Companies perform EDD checks to ascertain the nature of each business and the purpose of these large-scale transactions.
Industries that Should Implement KYC Compliance
The best way to avoid fraud and adherence to international KYC/AML compliance is to use the know your customer process. In addition to offering a frictionless onboarding process, these industries should implement KYC to prevent fraud attacks.
1. Banking and Insurance
One of the main applications of due diligence is in banking and financial institutions, as banks offer various account-opening services to a wide range of clients. Banks rely on KYC and AML solutions to combat financial crime, including identity theft and money laundering. Banks and insurance companies implement KYC solutions as they provide online registration of potential policyholders. By implementing KYC compliance, insurance companies can ensure that their clients are who they claim to be. Many other companies, such as lenders, mortgage companies, and brokerage firms, use KYC services to add security to their day-to-day operations.
2. Travel Industry
The development of technology has dramatically altered the travel industry. Even the global travel industry has found life more convenient thanks to technology. They can improve customer experience by using robust KYC compliance procedures. Online scams have become more sophisticated as a result of technology. Thus, KYC significantly lowers the likelihood of fraud and illegal activity.
In conclusion, KYC compliance is an indispensable shield for businesses against the digital threats of the modern era. By carefully verifying the identity of customers, organisations can establish a robust foundation of trust and security, preventing fraudulent activities and potential financial losses. Moreover, prioritising KYC compliance fosters a secure business environment and customer loyalty and confidence. As we navigate the ever-changing landscape of digital risks, the commitment to KYC compliance remains a crucial cornerstone for businesses seeking to thrive in this dynamic era.
Also Read: Video KYC Solution.