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Standard KYC Compliance Procedures Around the Globe for Businesses

Technology has connected individuals and businesses all across the globe, consequently overcoming barriers to the successful delivery of services from a distance. This collaboration across borders has given countries an opportunity for economic growth. But even though the technology is making life easier, it has significantly intensified remote threats to businesses by exposing it to bad actors such as cybercriminals, fraudsters et al. Businesses have hundreds of customers spread in different corners of the world which makes the whole customer verification process complex.  

Verifying individuals is necessary for financial businesses so that they can better understand who they are concluding business with. The reason why identifying and understanding customers is crucial specifically because of the ongoing threats of financial crimes including online money crimes, money laundering, corruption, terrorism funding, and tax evasion. 

According to a survey, over 40% of companies have faced fraud incidents in the past 24 months. So, to maximize online business security and minimize the vulnerability to financial crimes including cybercrimes and identity theft, global regulations such as FATF have set forth AML and standard KYC compliance procedures for countries that fall under its umbrella.

Understanding KYC and AML (Anti-money laundering)

Every country has its KYC and AML compliance procedures but the idea is the same i.e. verifying identity documents to ensure that customers are who they claim to be and not an imposter who is just trying to access your system for personal negative gains. The reason behind these processes is to prevent fraud and money laundering activities. Global standard KYC (Know your customer) compliance procedures include are not limited to:

    • Biometric authentication: such as fingerprint scanners, eye scanners, voice identification, facial recognition for liveness detection, and others
    • Document verification: This is for verifying the authenticity and the validity of a government-issued ID document
    • Address verification: Some online businesses verify customer’s address to avoid scams and costly chargebacks
    • Age verification: Other online businesses such as gaming, betting, and online gambling requires age verification to prevent minors from entering
    • Face verification: It verifies the face of individuals, matched with the image on their ID document to add an extra layer of security
    • 2-factor authentication: Prevents online accounts from being compromised 
    • AML screening: Customers are screened against PEPs (Politically exposed personnel), global sanction, and blacklists to check their involvement with money-related crimes before having them onboard
    • Video KYC: Here, the verification process is conducted through a live video call with a KYC expert

Automating KYC Compliance Procedures 

Above mentioned KYC compliance procedures make use of advanced technologies including Artificial intelligence, machine learning, optical character recognition, and liveness detection. Traditional KYC compliance procedures involve too much red-tapism. They are not only time consuming but complex as they go through several stages and departments to finalize, exposing the verification process to errors and delays, as a result, frustrating customers, affecting businesses, and increasing customer drop off rates altogether. 

Financial institutions work with hundreds of customers every single day. They simply can not afford delays and faulty procedures. Therefore, trending technologies such as artificial intelligence is making the whole verification process smoother, one step at a time. AI-based ID verification solutions are simultaneously conducting background AML checks and verification processes to approve identities. 

AI-based verification processes can help identify the tampered documents and facial spoof attacks with 90% more accuracy rates as compared with manual processes.

The 3-Step KYC Compliance Framework

KYC compliance is an on-going practice. This thorough verification process starts with customer identification for risk assessment. 

  1. Customer Identification Program (CIP): In this stage, financial institutions verify customers and screen them against all the available information to ensure that they don’t fall under sanction lists, which would otherwise pose risks of money laundering. Customer profiling is done based on risk assessment meaning low-risk profiles will only go through basic KYC whereas high-risk profiles will go through an extensive due diligence process.
  2. Customer due diligence (CDD): During this stage, all the basic information specific to the customer is collected such as name, address, date of birth, age, etc. from reliable sources, for customer verification. Similar to CIP, the stage also goes through a thorough vetting process, the risk rating is given on the grounds of the customer’s residential country, financial foothold, and robust AML screening. 
  3. Enhanced due diligence (EDD): Enhanced due diligence is performed when high-risk individuals are involved. The customers go through a rigid KYC and AML screening process. The customer’s business history, transaction history, and income sources are aggressively investigated.

The Relation Between KYC and AML 

Anti-money laundering compliance includes KYC compliance to work effectively. In other words, let’s say AML regulations assist companies to detect and report financial crimes as they happen and KYC procedures help them identify it. Makes sense? KYC and AML compliance is most commonly important for industries that include the flow of money in some way or form, such as:

  • Financial institutions including banks
  • Insurance firms 
  • Crypto exchanges
  • Online gaming, gambling, and betting sites
  • Digital wallets 

Above mentioned industries are more prone to money laundering that’s why global industries should know who they are onboarding. Failure to comply with AML and KYC regulations may result in heavy penalties applied by regulatory authorities and reputational damages so to speak. From 2008-2018, a total of USD26 billion have been charged for non-compliance to countries including the USA, Middle East, Europe, and Asia pacific. 

Advancements in technology have given endless possibilities to criminals for identity theft, scams, frauds, phishing, corruption, money laundering so on, and so forth. It may start small in the beginning but can lead to large scale frauds. These criminal activities are rendered serious by regulatory authorities. 

Every industry either its healthcare or eCommerce has been affected by online crimes with high economic impact. An estimated $24 billion were lost globally due to fraudulent credit card transactions, In 2018 alone. So cybercriminals are operating from every possible corner of the world. Moving illicit money across borders has been increasingly becoming a method for money launderers. Thus, it is crucial for businesses to have standard KYC and AML compliance procedures in place to mitigate such crimes.

 In summary, the standard KYC and AML process involves the following steps:

  • Verifying the identity of customers through document verification
  • Assessing the risk level associated with each individual through AML screening
  • KYC and AML remediation for ongoing monitoring and data maintenance

Disclaimer: The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal, tax or any other advice specific to you the user or anyone else. TurtleVerse does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.



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