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KYC for Financial Institutions

  • December 12, 2017
  • 6 minutes read
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E-KYC for Financial Institutions

fImagine you’re the owner of a brokerage firm. You’re not exactly the Wolf of Wall Street, as you have certain business ethics that you follow by. You understand the more you earn for your clients the more you earn yourself. Your firm is doing pretty good, you have a decent number of clients and your goodwill and popularity has gotten around and some of the best stock brokers work for your organisation. People trusting your good ethics offer to hire your firm for trading in the stock market. Many customers ask if you allow for online registration and payment options. Realising that there are a lot of companies that are using the web to offer their brokerage services you also start a project to go online with your services. Having been in the financial business and also having a chance to work for a banking firm you have a habit of checking out the cons of any venture before starting. You do some research you find out that a brokerage firm is under investigation for unknowingly aiding and abetting money laundering since a couple of high-profile but corrupt politicians from some country had taken up the services of this brokerage to launder their money. You realise that this could be a problem how could one identify that an individual is legit and not some corrupt person?

While you’re pondering and searching fraud prevention and an AML (Anti Money Laundering) solution you come across another incident involving a credit card fraud, where a person used a Black Card to pay the initial investment in a brokerage firm with the condition that half of the amount that he has invested will be transferred to a foreign account from where he will operate his brokerage account. The broker looking at the lucrative amount that was being deposited agreed to the condition. A couple of months later the brokerage company received an enormous chargeback. The credit card that was used was stolen and when they tried following up with the client, all the information he had provided was fake. Not only did they lose out on money but they also unwittingly participated in money laundering. Surprised yet more aware after reading this you have a better understanding of the risks involved. Searching for a solution, you come across something called KYC  that banks rely on for providing online account opening service to their customers. As you read about it a smile crosses your face and you know you have found the solution you were looking for…

What is e-KYC and How is it Useful in Fraud Prevention?

KYC (Know Your Customer) is a service that banking institutions and other financial and commercial entities rely on. It is also a requirement by the government and other regulatory bodies. It is a part of the AML solution. In it the various organisations are required to get the complete details of their clients and customers. That can include source of income as well as supporting documents that offer proof of identity as well as to prove the authenticity of the provided information. In the KYC solution, that is an online digital service, 3rd-party companies provide it and using advanced AI, and sometimes HI (Human Intelligence), check for the authenticity of the provided documents and the person themselves in relation to the provided information. The good part is all of this is done in real time with verification results being provided in a matter of seconds. These online KYC solutions use their AI, the Internet, a webcam or smartphone camera. The prospective applicant is asked to present their face in front of the camera and then are asked to show their ID while focusing on the picture, dob and name on the ID card. The digital KYC system matches the picture to the face and the rest of the information to the information that was filled out by the applicant. If the result is positive it proceeds with the transaction and informs accordingly, otherwise the transaction is stopped. At the same time if the company it want it can opt to have the selected individuals name and picture searched against thousands of global watchlists to check for suspicion of money laundering. Hence, it becomes a good fraud prevention system.

How can KYC help in Brokerage firms?

As mentioned in the hypothetical situation above. A digital KYC service can counter money laundering and provide a fraud prevention system. Had the 1st firm relied on a 3rd-party system it would have checked the global database and informed them that the politicians were under suspicion of corruption. In the second case with the firm getting chargebacks the system would have deterred the fraud from ever taking place as when the client would’ve been asked to show their face, ID and the credit card they were using they would have avoided it since they know they will get caught.

Fraud Prevention in Banking

Banking firms these days provide online account opening services and money management services as well. They rely heavily on online KYC solutions to weed out potential money launderers and fraudsters that might use a fake or stolen identity to open an account or get a credit card. It also assists when remote payments are received as physically the person is not present  and the KYC system helps with identifying the sender. Knowing the fact that they have to show their face and prove their identity, almost all of the fraudsters run away. Hence digital KYC proves as an invaluable fraud prevention tool.

Insurance companies need KYC too

Another financial institution that relies on digital KYC solutions are insurance firms. Since they also offer online registration for insurance services, they need to know the person that is being insured is legit and really who they say they are. Also it helps insurance companies to avoid any potential money laundering cases by ensuring proper KYC process is done and verified documentation is presented.  The KYC solution provides convenience to customers and security to the organisations.

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