COVID-19 (commonly referred to as the Coronavirus) has profoundly impacted the entire world. People are now staying at home, various industries are suffering, and governments are doing their best to stay ahead of the many changes.
It may come as no surprise that Know Your Customer (KYC) is also being affected by the Coronavirus pandemic. In this article, we cover everything you need to know including why KYC is more important than ever.
What is KYC?
Before we dive in, it’s important to have a good understanding of what exactly KYC is. Know Your Customer is the process of identifying an individual or corporation before entering into a business relationship. Regardless of location, business owners must fulfill certain day-to-day customer due diligence requirements. This includes verifying your customers’ identity (KYC) and applying a risk-based scoring model to understand how your service can be exploited to aid terrorism or launder money.
KYC requirements vary by both country and by industry. Financial services typically involve more intense KYC checks, whereas telecommunications companies have more lax requirements. Nevertheless, customers always need to share information that is verifiable. The bare minimum is usually the following:
- Full name,
- Date of birth
- Residential address
- A government-issued piece of ID
Additionally, prospective customers need to prove that they are not a politically exposed person and that they are the ultimate beneficial owner. In order to verify both, the business typically performs AML sanction screenings. Naturally, KYC can be done in-person or through a video call.
How is COVID-19 impacting KYC?
The current global pandemic has posed a massive challenge for organizations who are obliged to perform KYC checks and monitoring. While many companies have adapted to at least partly digitize their KYC processes, many have not and as a result have been hit especially hard during this time. Banks and other major financial institutions are floundering to try and set up online KYC, especially when you consider how unprepared the whole world was for the Coronavirus.
The onboarding of customers doesn’t simply grind to a halt when a pandemic occurs. Even though things may slow down, many people are turning to online options. Being able to onboard new customers is key, as is following regulations aimed at preventing crimes such as terrorist financing and money laundering.
However, some banks and governments are actually relaxing their KYC processes during the COVID-19 outbreak. On the one hand this is understandable; more than 1.1 billion people across the globe are unable to prove their identity. These people aren’t able to access what we consider to be basic services like banking, education, and healthcare. By relaxing KYC processes, these people may be able to access vital services for the first time, which is incredibly important during a time of crisis.
Additionally, it’s helpful that more regulatory bodies are being more understanding during this time. For example, AUSTRAC, Australia’s financial regulatory body, has adapted some of its KYC regulations for businesses during this time. Organizations can now verify identity with a digital copy of government-issued ID (such as a scan) and AUSTRAC is encouraging the use of digital KYC when possible.
On the other hand, the relaxing and introduction of new KYC procedures for some businesses leaves a big opportunity open for criminal activity. Criminals will be looking for weaknesses in the system, and if they find them, they will take advantage of them. For this reason, it’s important that organizations ensure that their employees understand how any new KYC procedures work, and the importance of reporting when necessary.
Why KYC is more important now than ever
Unfortunately, criminals are always looking for opportunities to capitalize on, and the Coronavirus is no exception. Cybercrime around the global pandemic has increased over the past few weeks and will continue to rise as long as it continues. Both individuals and organizations should be paying more attention to who they are dealing with.
While entire industries are being forced to turn digital, it’s vital that these KYC procedures are equivalent to their predecessors. For that reason, many businesses are turning to third party KYC services to fill the gap. It’s virtually impossible for organizations to build their own KYC software overnight, and in these cases, outsourcing is often the best option.
Criminals are going to be looking for any opportunity they can take advantage of during this time. One of the most common types of crime, especially during tragic times, is identity theft. To give you some perspective, prior to the Coronavirus there was a new victim of identity theft every two seconds in the United States. This is only going to increase now that companies are being forced to go digital. Because of this, the sanctity of KYC is incredibly important in the prevention of both minor and major crimes.
The future of KYC
What COVID-19 has emphasized is the need for digitized services in the age of social distancing, and a spotlight has been shone on organizations that are lagging behind. We are in a rather unique place in time where prior to the global pandemic the financial market was doing quite well. Now thanks to the Coronavirus, there is an obvious downturn and innovation is proving to be more important than ever as a result.
Businesses are essentially being forced into investing in areas they may have previously been avoiding, such as digital transformation and advanced analytics. Companies that have managed to stay ahead of the curve are now at a unique place where they can leverage their innovation more than ever, while everyone else is left scrambling. This crisis not only highlights how important digital capabilities and products are, but also how important speed and seamless integration are.
The many restrictions on movement and the fear of contamination surrounding COVID-19 has triggered an industry-wide rush to adopt electronic verification. Relying solely on paper documents makes it impossible to comply with the regulations surrounding the Coronavirus, which in turn means that organizations won’t be able to take on new business.
As it stands, for many services, customers are not able to present documents in person. Even if documents are sent through the mail, there is still a risk of contamination (not to mention the added hassle) and many are currently working remotely. Sending personal documents to someone’s home address isn’t exactly appealing and is a big security concern.
Electronic KYC verification solves all of these problems. No documents are required and the whole process can be carried out remotely. In fact, the Financial Action Task Force (FATF) is currently recommending that digital onboarding be used whenever possible. It’s clear that the future of KYC procedures is going digital, and that changes need to be made now to keep up.
The solution: KYC-Chain
Here at KYC-Chain, we offer a compliance dashboard and whitelabel customer on-boarding portal enabling companies to perform due diligence on their customers in accordance with CDD/AML/KYC requirements. With KYC-Chain, your business benefits from the most advanced technologies to remain compliant to GDPR, KYC, AML, CRS, MIFID and FACTA laws globally.
Our solution is flexible and scalable. You are able to customize all of your requirements for the different laws and regulations you will need to comply with. For businesses in the crypto space, we also offer Crypto AML. Our innovative technology allows you to analyze the historical transaction of a crypto wallet and check it against known risk indicators so you can make the right risk decisions, faster.
For companies that work B2B, KYC-Chain has Corporate KYC. Not only do you benefit from a fully customizable onboarding flow, you also get instant identity verification for companies and all beneficial owners. Our system gathers and verifies against golden sources of data for all individual and corporate members, shareholders and directors. Additionally, you gain real-time access to company records through official and authoritative commercial register data, from more than 100 million companies in over 90 different countries and jurisdictions.
Conclusion – COVID-19 and KYC
If the Coronavirus has taught us anything, it is that the entire world as we know it can change within a matter of days. Everyone has been affected, and organizations are no exception. As a result, the need for innovation and adaptability is at an all time high. It’s pretty clear that this is not just a storm that businesses need to weather; there need to be concrete changes.
KYC procedures are getting a major facelift thanks to COVID-19. While the reason for the technological upgrades isn’t the best, the outcome is that digital KYC procedures will become more commonplace, which is great for consumers and can save businesses valuable time and money. However, it is extremely important that through all this innovation and development, regulatory standards are upheld to prevent criminal activities like terrorist financing and money laundering.
Need to upgrade your KYC? Get in touch to see how easy the future can be.