25 Aug 2023

The Importance of Customer Onboarding and KYC / AML

Know Your Customer (KYC) is an essential component of successful and secure customer onboarding in the digital economy. By verifying the identity of customers before providing them with access to services, regulated businesses can be sure that their services are only being used by legitimate individuals and entities, reducing the risk of fraud or money laundering. 

KYC also helps companies comply with national and international Anti-Money Laundering (AML) and Counter Terror Financing (CTF) regulations, as well as other legal requirements and rules put in place to protect consumers and prevent financial crime. In addition to preventing fraud, KYC also ensures that customers have the correct information and credentials when they are signing up for services. 

Automated KYC

While traditionally KYC was carried out manually and viewed as a time-consuming and resource-intensive process that can lead to customer friction and frustration, new, AI-powered approaches to KYC are reversing the view and establishing the process as a key component of a professional onboarding process.

Automated and AI-powered KYC solutions can help reduce customer friction and make onboarding a smoother experience for all parties involved, improving the Customer Experience. By having access to accurate information, organizations can quickly and easily access customer data and personalize the services they offer them without relying on outdated methods or documents.

KYC can also help businesses reduce customer churn. By verifying the identity of customers and ensuring their data is accurate, companies can more easily keep track of who their customers are and quickly identify any potential issues or changes in their accounts or risk profiles. This allows businesses to provide better customer service while also increasing customer loyalty and retention over time.

In addition to the benefits provided to customers, KYC also helps organizations stay compliant with legal requirements and protect their brand by avoiding negative publicity associated with fraud or money laundering. 

KYC Checks during customer onboarding

When carrying out KYC checks during a customer onboarding process, businesses typically ask customers to provide up-to-date information that includes: 

  • Name
  • Date of birth
  • Identification documents, such as a passport or driver’s licence
  • Proof of address
  • For more risk-prone sectors or regions, businesses may also ask for further KYC information, such as marital status, employment status/history, or other information related to the customer. 

Once the customer has provided all relevant documents and information, it is important for the business to verify the information and its validity, and assess the customer’s risk profile. This will help ensure that customers are who they say they are, and to prevent any potentially fraudulent activity. 

It will also allow businesses to implement a Risk-Based Approach (RBA) to compliance. This essentially involves applying varying levels of due diligence checks on customers according to the level of risk they carry. This allows compliance resources to be more effectively used by a company and improve Customer Experience, processing low-risk customers with basic checks while applying more stringent checks on medium or high risk customers. The RBA is recommended by global AML watchdog the Financial Action Task Force (FATF), and most national regulatory regimes include core elements of the approach in their own directives. 

In addition to identity verification and implementing an RBA, businesses should also carry out ongoing monitoring on their onboarded customers, in order to detect and evaluate any changes to a customer’s risk profile. This will also help to ensure that customers are continuing to meet KYC compliance requirements, and that any suspicious activity can be detected in a timely manner. Businesses should also have procedures in place for handling breaches of KYC regulations or any other issues related to customer onboarding.

KYC Requirements for customer onboarding

Having clearly defined customer onboarding requirements is a core element of any financial institution’s risk management and KYC/AML/CTF compliance. These measures help financial companies to protect against fraud and money laundering, as well as meet anti-terrorism financing obligations as set out by the FATF and adopted into the law codes of the organization’s signatory countries.

The FATF sets out various KYC requirements for regulated businesses such as Financial Institutions (FIs), Virtual Asset Service Providers (VASPs) and other transaction or asset-related services. These include: 

  • Conducting customer due diligence (CDD) and address verification 
  • Verifying a customer’s source of funds 
  • Monitoring customer activity on an ongoing basis 
  • Maintaining records for at least five years

For CDD, FIs and VASPs need to obtain basic information about their customers including name, date of birth, nationality and residential address. This information must be verified in order to confirm its accuracy.

Address verification is another important aspect of KYC compliance. Financial institutions must verify the residential address of their customers, through submissions of supporting documents that need to also be verified for authenticity. This helps to ensure that customers are who they say they are and prevents identity theft. 

FIs and VASPs must also conduct ongoing monitoring of their customers’ transactions to identify any suspicious activity. This includes looking out for large or unusual transactions, as well as any changes in the customer’s behaviour or risk profile that could indicate money laundering.

Finally, regulated businesses must keep records of all customer information and transaction details for at least five years — unless otherwise stipulated by data privacy laws such as the EU’s GDPR. This is necessary to comply with AML regulations and to ensure that customer activity is reviewed on an ongoing basis. By maintaining consistent and organized customer records, regulated businesses can also clearly demonstrate their commitment to compliance in the event of a regulatory audit. 

By following these KYC measures as set out by the FATF, FIs, VASPs and other regulated businesses can ensure compliance with AML/CTF regulations while protecting themselves and their customers against fraud and other criminal activities. 

Benefits of Automated KYC

KYC compliance is an integral component of customer onboarding for regulated businesses that protects industries, customers and communities from a wide range of risks, including fraud, money laundering, terrorist financing and other financial crimes. 

Automated KYC solutions offer businesses the opportunity to quickly and securely verify their customers’ identities in real time without sacrificing the data security that comes with manual processes. With automated KYC, businesses can enjoy streamlined customer onboarding while staying compliant with regulatory requirements in the jurisdictions they choose to operate in. 

Advanced KYC onboarding solutions such as those offered by KYC-Chain help businesses adhere to KYC compliance standards with new and constantly-evolving technologies and practices. Our end-to-end workflow solution allows for onboarding parties to carry out customer identity verification through a variety of methods, including: 

  • Fast bank account verification,
  • Liveness checks to check the authenticity of submitted selfies or videos, 
  • Government ID validation against national databases and other third-party data sources.

This helps ensure that our clients’ customer onboarding processes comply with global KYC regulations — and also allows businesses to quickly capture and analyze critical identity information in real time, allowing them to make more informed decisions about customers.

Automated KYC solutions also offer businesses the added benefit of increased security when it comes to customer data. KYC-Chain’s clients can securely store customer information and ensure that only authorized personnel have access to it, allowing them to remain compliant with stringent privacy laws such as the EU’s General Data Protection Regulation (GDPR). This eliminates the risk of malicious actors gaining access to sensitive information and helps protect both customers and businesses from potential fraud.

How KYC-Chain can help

Automated KYC solutions offer a powerful tool for businesses to quickly and securely onboard customers while adhering to global KYC compliance standards. By providing real-time identity verification and secure data storage, automated KYC solutions help ensure that customer onboarding processes are fast, efficient, and compliant with regulatory requirements. 

By ensuring compliance with diverse regulations, businesses that implement effective automated KYC can confidently scale into new markets and grow their business without the threat of regulatory sanctions. 

With the rise of digital transformation, automated KYC solutions are becoming increasingly important as businesses look to quickly and securely onboard customers. KYC-Chain’s automated KYC onboarding solution provides an efficient and secure method of customer onboarding that ensures compliance with global regulations while minimizing the risk of fraud. By leveraging KYC-Chain, our clients can enjoy a streamlined onboarding process while staying compliant with KYC standards. 

Interested in finding out more about how KYC-Chain can help your business reach compliance and scale into growth? Send us a message and we’ll be happy to arrange a demo

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