KYC Process

Online businesses need to verify their customers’ identity before they associate business relations. Know Your Customer (KYC) is a mandatory set of requirements for banks and enterprises to better identify and verify their customer’s identity and background information. It is the first step towards performing Anti Money Laundering (AML) and other measures to stop potential cybercrime.

What is a KYC Process?

A KYC process starts with developing a Customer Identification Program (CIP) which collects identity information of customers. The details submitted by the customer are then verified through a series of Customer Due Diligence (CDD) procedures to verify if the information is legitimate. It allows to better manage risk profiles of customers and ensure AML compliance. 

Why is the KYC Process Important? 

A KYC verification process allows banks and business entities to assess a customer’s profile and monitor suspicious behaviour. This enables the prevention of financial crime including money laundering (ML) and terror financing (TF) through the organization. Implementing a KYC Process during customer/user onboarding reduces the chances of identity theft as well which helps business maintain a sense of security. 

Components of the KYC Process

Customer Identification Program (CIP)

The CIP acquires important information necessary to complete a KYC Process. To conduct financial transactions through a business, individuals need to complete the Customer Identification Process. Risk assessment is an important element of the CIP which provides essential information to calculate the overall risk associated with a particular customer. 

For Customers

Below are listed a set of minimum requirements for the customer to complete the CIP:

• Name of the customer
• Date of Birth (DoB)
• The residential address
• A unique identification number e.g. an SSN

For Businesses

When it comes to entities and organizations, a CIP requires the following information from the client:

• Name of the corporation
• The address where it is located
•  Ultimate Beneficial Ownership (UBO)
• Company Registration number

The information provided in the Customer Identification Program is used to verify the user’s identity through a series of verification checks. 

Customer Due Diligence (CDD) 

The CDD is an important component of the KYC Process which plays a key role in developing an effective AML/CFT program within the organization. Customer Due Diligence comprises identity verification checks to evaluate the information acquired during the CIP. The CDD process is performed by cross-checking the user’s information submitted through their identity documents. Facial recognition can also play a significant part in CDD to verify a person’s facial identity against the photo they provided earlier during the CIP.  

Parts of the CDD

Customer Due Diligence could be broken down into two types depending upon the nature of customers and their transactions.

Simplified Due Diligence 

SDD is performed for low-risk customers which are less probable of being money launderers and potential criminals. Simplified Due Diligence does not require comprehensive checks to verify the customer’s background 

Enhanced Due Diligence

An Enhanced Due Diligence procedure is necessary when customers are usually categorized as high-risk entities. This could be determined by screening their name through sanction and Potentially Exposed Person (PEP) lists which are important to identify the combined risk of associating ties with them. EDD checks also include continuous monitoring of the high-risk customers because of the nature and amount of their transactions.

Ongoing Monitoring 

Customers which are categorized as potential risk to the business undergo ongoing monitoring checks. It is used to detect suspicious activities by high-risk customers to eliminate any inconsistencies in financial data and properly addresses them.