KYC Process & Procedures Guide

Anti-money laundering is a guiding force for financial services companies. Know Your Customer (KYC) is an integral part of AML regulations and helps financial institutions weed out customers who commit financial crimes, including terrorist financing, human trafficking and the drug trade. While these efforts are necessary, they apply constant stress to your company.

Several government organizations create and maintain these regulations, including the Financial Industry Regulatory Authority (FINRA), which examines financial institutions to make certain they are compliant with anti-money laundering regulations. To achieve this compliant status, financial service providers must build and maintain effective KYC processes of their own.

What Is the Goal of the KYC Process?

The KYC process aims to uncover new customers’ true identities and determine if the source and/or use of their funds is legitimate. KYC also determines the amount of trust a financial company can assign a customer. Individuals and companies at high risk for money laundering will be monitored much more closely than other new clients.

Proper KYC procedures will also uncover the beneficial owners of a company, those individuals who really benefit from the company profits and who are not necessarily those listed on financial accounts or company mastheads. Their relative anonymity often causes difficulties for your company.

During the KYC process, your financial institution must gather and verify facts about the customer’s identity and those with authority to make decisions about the account. You must also create a risk profile and establish procedures for handling individual accounts.

AML compliance relies upon KYC in order to identify high-risk customers. Financial institutions are not allowed to be passive when it comes to their clients. If you do not perform due diligence, your company will be held liable by the government.

Key KYC Processes: What Do KYC Programs Typically Include?

A government-compliant KYC process must contain certain elements. These include:

• Customer Identification Program (CIP) — Your CIP must include a robust client investigation that may include searching public records, performing criminal background checks, examining sanction lists, and identifying politically exposed persons (PEPs). These steps are in addition to customer identity verification, including proof of address, and creating a risk profile from the necessary KYC documents.
• Customer Due Diligence (CDD) — For AML CDD, your financial institution must take meaningful steps to determine the identity of both the named owners and beneficial owners of an account and the sources of the account’s funds. CDD also requires that any financial services institution determine the source of the funds and the expected use of those funds.
• Ongoing Monitoring — Enhanced due diligence (EDD) requires your institution to continue monitoring customers after the initial onboarding process to confirm that their risk profile has not changed. Additional risk assessments are part of regular KYC checks.

KYC Process Best Practices

KYC can be complex and time-consuming if financial institutions do not have efficient practices. The following KYC process tips and best practices can help ensure smoother AML and KYC compliance.

Prioritize a Risk-Based Approach

An excellent way to prevent money laundering and other financial crimes is for your financial institution to implement a risk-based approach that identifies high-risk clients as well as suspicious activity.

Certain clients, including PEPs, foreign individuals, cash-intensive businesses, nonbank financial service companies and NGOs pose a much higher risk of these behaviors. Monitoring these clients more closely will lower the chances of financial impropriety.

Automate the Customer Onboarding Process and KYC Verification

Investing in technically advanced software programs makes KYC compliance much simpler and more effective. You can more easily acquire vital customer information without harming the customer experience. A new account opening can be tedious and frustrating without automated processes.

The right software makes authentication of a customer’s identity easier and more thorough. They can upload a driver’s license in real-time, for instance, as well as other necessary documents.

Improve Quality of Data

Using automation and other processes can improve the quality of data you acquire. By getting documents in real-time, you are less likely to use outdated information on the account. Digging deeper into the client’s background, including searching pertinent databases and sanctions lists, will allow you to avoid clients at a high risk of criminal activity.

Utilize Biometrics

By using biometrics to verify customer identity, you can make your KYC process simpler and more thorough. Implementing facial recognition, retinal scans, fingerprint IDs, voice recognition and other biometrics makes it much more difficult for clients to give you a false identity. These processes can be implemented into your automated onboarding software to minimize customer risk.

Streamline Ongoing Monitoring Processes

Enhanced due diligence requires increased ongoing monitoring processes, which can be time-consuming and labor-intensive. Fortunately, you can now acquire software that makes processes such as AML screening automatic.

eKYC vs. KYC Processes

Electronic Know Your Customer is simply using online processes to verify customer identity and customer transactions. More and more financial services companies are using eKYC to onboard and monitor their clients. Although the software for eKYC has advanced greatly, some companies worry about cyber criminals attacking the KYC process to hide their illegitimate practices.

While online crime is a concern, advanced eKYC software is sophisticated and designed with high security to deter hackers. It also enhances the consumer experience. However, some companies may always prefer traditional KYC procedures that require a face-to-face video meeting with officials of the company. Some consumers may also desire to do their business in person and avoid any possibility of online identity theft.

Who Regulates KYC Processes?

Every country has its own organizations that establish and oversee KYC requirements. In the U.S., these government bodies include the Financial Action Task Force (FATF) and the Financial Crimes Enforcement Network (FinCEN).

Your company can face serious penalties if it does not follow KYC regulations. In 2021, record fines were assessed against mega-corporations, including $700 million against one bank. Sometimes, jail time may be assessed against certain company executives who violate KYC policies.

Simplify KYC Processes With Jumio KYC Solutions

Following KYC processes is a requirement for financial services institutions, and failure to stay compliant can mean your company will face serious financial, criminal and reputational repercussions. However, AML and KYC procedures can complicate cultivating and maintaining satisfying business relationships with new customers. Clients still expect a seamless customer experience no matter the current AML climate.

Fortunately, Jumio can help you meet your KYC obligations while providing a superior customer experience. We offer advanced software programs with easy integrations, false positives prevention, and automated customer identity verification. With Jumio, you can stay compliant with rigid governmental regulations concerning AML and KYC and avoid costly fines and damage to your company’s reputation.

KYC is a necessary process that does not have to be overly burdensome for your company. Contact us today for more detailed information on Jumio AML and KYC compliance tools. You and your customers will benefit from our expertise.

Updated: March 13, 2023