Know Your Customer (KYC) is the process of collecting important data about your customers or clients with the goal of knowing them better. Although it might sound like just another catch phrase, in the business world KYC is an important standard.
What are the KYC compliance requirements?
KYC compliance requirements include:
- Developing an extensive picture of a customer’s identity
- Verifying the authenticity of that picture
- Understanding the characteristics of a customer’s activity
The KYC process is common in retail and financial services, where a strong Customer Identification Program (CIP) is critical for smooth and safe operations. For example, all financial institutions from banks to insurance agencies and even credit companies now have KYC software. For most of these organizations, KYC is a mandatory part of the consumer onboarding platform.
Why is it important to know your customer?
The financial services sector suffers from many bad actors who try to use legitimate channels for their illegitimate activities. The KYC process is the first line of defense in anti-money laundering (AML). It attempts to block criminals from gaining access to financial and social services.
In particular, KYC policies are important in stopping high-risk cases of financial crime, such as corruption, money laundering, and terrorism financing. If security organizations blacklist a particular identity, financial service providers can avoid doing business with them. This puts an organization in the legal green zone. And more importantly, it protects would-be victims from potential harm.
What are KYC procedures?
The typical KYC process involves collecting basic and sometimes sensitive personal data (including biometrics) to evaluate customer risk. Next, this data is fed through a comprehensive database to verify the identity.
Once it’s in the software, the data is checked against watchlists to see if it gets any hits. These lists track individuals who are linked to corruption, money laundering, crime rings, or bribery cases. If the application returns any hits, the organization can take appropriate action.
How are KYC insights leveraged?
After KYC data passes through the database, a risk assessment report provides insights. This report defines the risk that a particular identity poses and the likelihood that they will get involved in illegal activity. A KYC analyst can then use the report to create a map that shows the expected pattern of activity for that identity. If the actual activity ever crosses the borders of the map, it should trigger an internal review.
How do I develop a KYC strategy?
So how can an organization successfully develop risk assessment reports and activity maps for its many customers? The answer is they might not have to. One risk assessment report and activity map can apply to multiple people who have similar personality traits and behavioral characteristics. In other words, the projected activities of similar individuals should mirror each other.
This flexibility emphasizes the efficiency of the KYC standard as a powerful risk mitigation tool. Similarly, organizations looking to scale effectively need an equally flexible and efficient solution that meets KYC requirements.
Beam’s KYC solution uses the top identity verification providers and previously untapped data sources to provide a complete digital identity of customers. This zero-maintenance, highly secure solution allows companies to confidently validate a customer’s identity, assess risk, and minimize penalties for non-compliance. Request a demo today to see how Beam can solve your KYC compliance needs.