Why have IPOs started Implementing Digital KYC?

Have you heard the phrase “I’m afraid we have to go public Mark”, well then you are on right page to understand, that is a time and position when companies face the public.

For most Chief Financial Officers, this is a daunting and nerve wracking period. Directing and organising an initial public offering can be the most stressful yet rewarding tasks they would ever undertake. How they execute their plan, arrange people, market and strategise, will define their success. Once an IPO closes, CFOs quickly implement the process of executing the post IPO business plan. An aspect under cloak, is the performing of Digital KYC procedures on investors for secure customer on-boarding.

Understanding IPOs

At its core, an Initial public offering is where a previously unlisted company sells new or existing shares (securities) of itself to the general public for the very first time. Prior to an IPO, a company is thought to be private, with limited investors and small number of high profile investors. Whereas, after an IPO, the company becomes publicly listed and recognised on a stock exchange.    

Reasons Behind Carrying out an IPO

Reasons to go public can be one and many, varying from company to company but mostly reasons ought to be quite straight forward. For companies, it’s simply a money making move. Normally companies go public when they require more liquidity at hand and increase capital on hand by selling shares publicly. The money that is collected is then later reinvested for business expansion and business infrastructure upgrade, or meeting targets according to future growth plans.

Additionally, when a company goes public, it is in a way advertising itself. The larger the firm the greater chances of it attracting top candidates globally, to be part of their stock ownership plan.
On another note, going public enables companies to utilize stock options as a part of their merger or acquisition deals with other companies in acceptance as payment.  

There’s also prestige, for some companies its a great deal on bragging rights to be listed on major stock exchanges of the world – like the NYSE, Nasdaq, LSE or JPX.

IPO’s and Third Party KYC/AML Service Providers

Initial Public Offering is a long, tedious and a complicated process in undertaking for any company CFO’s and managers conducting the IPO. While the general idea is to raise money, most companies tend to miss out on a crucial aspect in the Pre-IPO process – KYC – ‘Know Your Customer’.

Unlike ICO’s which are non-regulated, the process of an IPO is fairly intricate and complex. Companies and managers are occupied with consistent backlog of government and legal paperwork, tax amendments, procedural updates and long business documents that Knowing your customer becomes a second priority.

This is where third party service providers come in play and facilitate large companies in their IPO processes and provide them Digital KYC services, to secure their investments by ensuring the purchases of stocks are made by legitimate and authentic entities.

Voice of Independent Regulatory Bodies

International Regulatory bodies, like The Securities and Futures Commission (SFC) express directives that generally direct the adequate involvement of placing KYC procedures. For Investors, placing agents and fund managers need to oversee in respect to the Code of Conduct.  

• Take all reasonable steps to establish the true and full identity of each of its clients, and of each client’s financial situation, investment experience, and investment objectives

• Be satisfied on reasonable grounds about the identity, address and contact details of:

1. 1. The person or entity (legal or otherwise) ultimately responsible for originating the instruction in relation to a transaction; and
   2. The person or entity (legal or otherwise) that stands to gain the commercial or economic benefit of the transaction and / or bear its commercial or economic risk.

Prefered Choice of IPO for Digital KYC

Most IPOs that happen, involve time, money and risk. The largest of all, is the risk that it exposes itself to a pool of potentially global clients, that are waiting to invest and buy shares to increase the liquidity of a company. Most of these smaller clients, single investors are unknown to the offering company.

In order to validate an individual’s Identity and ensure security to not only the company but also the IPO sale as well, Shufti lends a dependable arm by being a reliable Digital KYC and AML operator. Shufti facilitates IPOs in providing all identity and document verification services under a greater Identity Management Suite. In specific, when a potential contributor or investor comes forward, Shufti possesses the required procedures of CDD – Customer Due Diligence and EDD – Enhanced Due Diligence in place, as a part of it’s greater KYC narrative.

For small or high stake companies undergoing an IPO,  a dedicated KYC platform like Shufti offers quick real-time processing for Identity verification – saving valuable time in the process and quicker investor on-boarding. A versatile system like Shufti is an adequate fit, providing a scalable solution with maximum usability of the internet for enhanced customer facilitation. Shufti will verify identities by requesting the customers to face a camera and then show an ID documentation, focusing in on the Picture, DOB, Name and Proof of Address(if applicable).

The AI technology will identify any potential shortcomings in documents or facial mismatch and display results accordingly. Thus, reducing the chances of fraud taking place with IPOs, by minimising the accessibility to only authentic identities with valid documents to be worthy enough to participate in the IPO.   

Accepting Inevitables

Fraud posses a universal threat to all global institutions, whether they may be financial or major companies undergoing an IPO. In a process that puts its stock image and financial presence in jeopardy, the likelihood of fraud is an imminent cloud atop firms and companies alike. A dedicated Digital KYC platform can drastically help mitigate risks and ensure that a company’s IPO process executes smoothly with added legitimacy of investors, along with being ‘All Clear’ with international Regulatory authorities.

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