Recent reports of data breaches have posed complications for parties involved. One established solution to this problem is identity verification, a crucial process done in various industries. It ensures safety and security for both companies and their clients and customers. For business and finance sectors, this process is more known as kyc (Know Your Customer).
The KYC (Know Your Customer) procedure is critical in assessing customer risk. It is a legal requirement in compliance with existing AML (Anti-Money Laundering) laws. The process also allows businesses to get to know their customers because it requires collecting, verifying, and confirming the identity of individuals they are engaging in business with.
Requirements for an effective KYC program
- CDD (Customer Due Diligence) – one of the first important analyses to determine if a potential client is trustworthy; this is why customer due diligence is considered a crucial element in managing your risks and protecting your company against people who might be a threat. There are three levels of due diligence:
- Basic Customer
- CIP (Customer Identification Program) – identifies the customer and does verification of their legal status that is checked using reliable documents and sources. If the customer is acting on behalf of another or an entity, businesses would require due diligence & verification as well. One critical element for CIP to be successful is risk assessment.
- Monitoring transactions – undertaking in the monitoring of transactions or ongoing due diligence ensures that customer’s transactions according to the information they’ve provided for CIP have no discrepancies. This procedure includes the supervision of financial transactions based on the thresholds established as part of a customer’s risk profile.
- Risk assessment – it is an important element that allows companies to understand their customers’ nature before starting a relationship with them. This assessment notes a customer’s background, such as their financial status, income, and socio-economic background.
After a customer declares their identity, verification needs to be done with reliable documents. When you go through this process some of the documents that you will need would be as classified:
- Identity Proof Documents – consists of legal identification documents issued by the government with the customer’s photo.
- Documents for Address Proof – some documents you can use for this are passport, voters ID card, lease agreement of the residence, and maintenance or utility bills that can’t be more than three months old.
Benefits of KYC Processes
Knowing who your customers are helps companies secure their business and nurture synergy with clients. When you know who a customer is, companies will reduce the risk of fraud, scams, and account theft. This process also increases the steps you have done for sufficient CDD, protecting against fines for money laundering, even if unintended. Lastly, this gives customers confidence that their accounts are secured, building trust, and maintaining a good relationship.
Policies created for kyc that global regulators mandate are becoming progressively valuable to prevent illegal schemes such as identity theft fraud, money laundering, and terrorist financing. Suspicious activities made by “customers” are easily detected with the adoption of the procedure of knowing your customers.
Business owners must know with whom they are conducting business to protect themselves from potentially damaging activities. Integrating this strategy for another layer of security will be advantageous for both the customer and the business.