Commonly referred to as KYC, “Know Your Customer” or “Know Your Client” is a set of regulatory guidelines for customer identity verification. KYC plays a significant role in today’s business world; however, the core of KYC is the financial sector, where it also finds its origins.
With the rapid development of technology, the need for an online verification process became evident. Thus, KYC procedures became digitized into what is known as eKYC (“electronic Know Your Customer”). This has changed the way financial institutions perform identity checks. Now, the KYC process is simpler, more accessible, and consistent with modern technological advancements.
In this article, we will lay the groundwork for KYC in banking, the KYC process, and PXL Vision’s complementary IDV solution.
What is KYC in Banking?
KYC is a subset of Anti-Money Laundering (AML) requirements that financial institutions are obliged to comply with. These legal guidelines are implemented to protect individuals, businesses and financial service providers, like banks, against a number of financial crimes, including:
- Money laundering
- Financial terrorism
To prevent the aforementioned crimes and other illicit activities related to financial transactions, certain measures must be taken to protect banks and their customers. KYC procedures are the first step in this direction. Therefore, banks are required to perform an initial identification and verification of their clients and associates, followed by continuous monitoring for the duration of each business relationship.
(Note: the list of financial service providers include, but are not limited to, banks, payment service providers, lenders, investment firms, money transfer service providers, crypto exchanges, and export creditors.)
The responsibility to comply with KYC requirements rests entirely with the company. If, under any circumstance, a client fails to meet the minimum KYC requirements, a bank or financial institution has the right to terminate the existing business relationship and is expected to immediately report unlawful activities to the appropriate authority.
Banks may also refuse the opening of an account if KYC standards are not met. Failure to comply with these legal requirements can result in significant fines, or in more serious cases, detrimental consequences.
Financial institutions are known to have the strictest KYC processes. For more information regarding your country’s particular regulations, please refer to its KYC laws.
There are three chief requirements that form the basis of any KYC process:
- Facial verification – Facial verification prevents spoof attacks and ensures the live presence of the individual.
- Document verification – Document verification guarantees that the customer in question's government-issued ID is neither forged, invalid, nor faulty. Financial institutions tend to compare at least two different forms of ID to confirm the customer’s identity. These may include, but are not limited to, a birth certificate, social security card, passport, driver’s license, etc. Additionally, a document containing income proof may be required in some circumstances.
Address verification – Verifying the address on a government-issue ID against any document accepted as Proof of Address (POA), not only aids in the confirmation of a customer’s identity, but may also alert banks to inconsistencies that warrant further investigation.
The benefits of KYC in banking include:
- Market safety: KYC helps to prevent terrorist financing while keeping wider markets and economies safe.
- Risk assessment: Assessing risk ensures that banks are not affiliated with corrupt individuals, entering disadvantageous agreements, or putting the institution at risk. Financial institutions will also be able to make informed decisions regarding the suitability of clients and what their long-term business relationship might look like.
- Reliable and trustworthy: Complying with KYC regulations will keep your company reputable, dependable, and penalty-free!
Why PXL Vision is the Solution for You
PXL Vision's IDV solution is customizable to fit the individual needs of your institution. With our solution, you can provide clients with a user-friendly experience that can also be done remotely. PXL Vision's technology is secure, compatible, and cost-efficient.
Our IDV solution:
- Utilizes high-efficiency AI technology
- Verifies customers in only 30 seconds
- Accurately performs POI and POA checks
Key components of KYC
1. Customer Identification Program (CIP)
The most critical component of the KYC process is the initial verification of a client’s identity. Each individual or business entity that wishes to open an account must first be verified.
Customer identification procedures include the following:
- Data collection
- Document checks
- Identification and verification
- Sanctions list checks, etc.
Documents, especially ID cards, are usually verified through a document reader and document verification software.
2. Customer Due Diligence (CDD)
Following the CIP process, banks must then establish a risk profile for each customer; this is known as Customer Due Diligence (CDD). This process dives a little deeper into the history and activities of the customer. This additional information allows banks to make better, more informed decisions about each potential client.
Higher-risk customers often require more enhanced checks. The bigger the risk, the more thorough the check.
3. Enhanced Due Diligence (EDD) / Continuous monitoring
When a customer passes the initial check, the opening of a bank account can commence. This account will continue to be monitored – as will the client’s activity and status. Among the things being continuously checked are transactions, sanctions lists, and media coverage.
The extent and frequency of these checks depend on a client’s risk profile. The goal is for banks to ensure that their customers remain as law-abiding citizens that do not pose a risk to the institution’s interests or reputation.
Banks are obliged to keep records from initial KYC checks, as well as ongoing transactions. Record-keeping will allow you to immediately spot any discrepancies or obvious illegal activities.
It is recommended that banks keep every customer’s records for at least 5 years.
Banks are obliged to report any suspicious activity to the appropriate authority and ensure that there are already procedures in place so that the situation may be quickly and effectively handled.
Once the relevant authorities are alerted to the situation, any business relationship with the suspicious client may be terminated.
Although KYC in banking is mandatory, its benefits are clearly indispensable. These guidelines and processes are essential to the financial world.
PXL Vision’s solution is guaranteed to improve your work procedures, satisfy your customers, and protect your institution from monetary loss and reputational damage. We provide guidance when choosing the KYC process for your bank to ensure compliance with the appropriate KYC regulations. We are here to deliver a solution that protects your institution and customers, while instilling trust between parties.
Which documents are required for the verification processes?
The documents that are generally required for KYC include: government-issued ID (with an ID photo), proof of address, and in some cases, proof of income.
What happens if you fail to comply with KYC regulations?
Depending on the severity of the situation, non-compliance is punishable by means of considerable fines or may be subject to any other penalty deemed appropriate.
What are the benefits of implementing PLX Visions' solution?
PXL Vision's solution employs efficient AI technology, which can perform POI and POA checks, as well as verifying your client in only 30 seconds.