KYC process and regulation

April 25, 2022

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KYC and KYC process explained for businesses

As a business, you are required to have Know Your Customer (KYC) processes and guidelines in place to ensure that you are meeting anti-money laundering and countering-the-financing-of-terrorism (AML/CFT) obligations. By collecting and verifying customer information, businesses can ensure that they are not unknowingly facilitating criminal activity. Your KYC processes and guidelines must be appropriate to your business, commensurate with the risks involved, and reviewed and updated on a regular basis. In this article we aim to answer the most important questions about the often obscure topic Know Your Customer.

What does KYC mean?

KYC is the abbreviation for the term “Know your clients” or also “Know your customers”. It has come to mean the process of a business verifying the identity of its clients. The term “client” refers to any customer, client, or counterparty with which the business has a relationship. 

The purpose of KYC is to help businesses comply with anti-money laundering (AML) laws and regulations. These laws and regulations require businesses to take steps to prevent their customers from using their products or services to launder money or finance terrorism.

KYC is a process that helps businesses to verify the identity of their customers. This is usually done by asking for certain documents, such as a passport or ID card. By verifying the identity of their customers, businesses can be sure that they are not dealing with criminals. This helps to protect both the business and the customer.

Brief introduction to anti-money laundering (AML)

One of the most common ways in which criminals exploit the internet is through money laundering. In order to launder money, criminals need to find a way to move it from one place to another without raising suspicion. They do this by using a variety of methods, including setting up fake companies, using shell companies, and using virtual currencies. To prevent money laundering, it is important for businesses to know the identity of their customers. This is where Know Your Customer (KYC) comes in.

Who regulates KYC/AML Compliance?

There is no single regulator for KYC compliance. Every country has its own institution.
The Federal Financial Supervisory Authority (BaFin) is the regulatory authority for the banking sector in Germany. The Swiss Financial Market Supervisory Authority (FINMA) regulates KYC in Switzerland. In the US, KYC compliance is regulated by the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury. 

Some other institutions are:

  • Australia: AUSTRAC
  • Canada: FINTRAC
  • Italy: Banca d’Italia
  • United Kingdom: The Money Laundering Regulations
  • India: Reserve Bank of India
  • South Africa: The Financial Intelligence Center Act 38 (FICA)

What is a KYC process?

The KYC process is important not only for compliance purposes, but also for risk management. By understanding a customer’s risk profile, financial institutions can take steps to mitigate any potential money laundering risks.

There are a number of different KYC programs that businesses can implement, but it is important to ensure that the program is tailored to the specific risks of the institution. A one-size-fits-all approach to KYC is not effective and can lead to gaps in compliance.

What are typical steps of a KYC process?

  1. Customer Identification Procedures
    You should have procedures in place to identify and verify the identity of your customers. This will usually involve sight of original identification documents, such as a passport or driving license.
  2. Customer Due Diligence
    You should carry out due diligence on your customers, including assessing the risks they pose to your business. This will help you to decide what level of monitoring is appropriate for each customer.
  3. Ongoing Monitoring
    You should have procedures in place to monitor your customers on an ongoing basis. This will help you to identify any changes in their circumstances which could pose a risk to your business.
  4. Record-Keeping
    You should keep records of your KYC procedures and transactions. These records should be kept for at least 5 years.
  5. Reporting
    You should have procedures in place for reporting suspicious activity to the relevant authorities.


How PXL Vision can help you with your KYC process

The KYC process can be time-consuming and costly, but it is a necessary part of doing business in today’s world. By taking steps to verify their customers’ identities, businesses can help protect themselves from being used to launder money or finance terrorism.

As every KYC process is based on identity verification, PXL Vision can support you right from the bottom. Our IDV solution works with highly efficient AI technology and verifies your customers in less than 30 seconds. Our experts are also very familiar with the relevant KYC regulations and know what to look out for in the identification and further steps in the KYC process.

So, get in touch with us and find out how our identity verification solution can help you to get started with or optimize your KYC process.

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