Technology has revolutionized all sectors globally, and banks and businesses are no exception. In the present digital financial revolution, where most customers prefer online banking, businesses must develop safe and secure strategies to deal with customers. That’s where the Know Your Customer process comes in. KYC compliance is of great importance when it comes to ensuring the safety of businesses and the banking sector.
KYC Compliance – What is it?
KYC compliance involves the stages of legal identity verification to ensure the safety of banks and businesses. Set by the government and FATF, KYC requirements may vary from country to country. However, auditors are employed in every sector to ensure KYC compliance.
Regulated institutions develop strategies to ensure the customer identification process and verify them on a regular basis as per guidelines issued by regulatory authorities. The process allows companies to prevent financial crimes and huge penalties, reducing the risk of credibility loss.
Significance of Know Your Customer Compliance
One of the many reasons to follow Know Your Customer Compliance is to safeguard your bank or financial company from huge penalties. However, KYC banking compliance is mandatory for online businesses and banks due to following reasons:
- Preventing Penalties
Negligence in customer due diligence often allows criminals to perform suspicious fiscal activities without any backup or record established by banks or businesses. Consequently, banks and businesses have to pay heavy fines as compensation for their negligence.
- Mitigating the Risk of Fraud
KYC compliance is mandatory for financial businesses and plays a vital role in reducing the risk of fraud. Having more information about customers and businesses makes them more secure, hence preventing the risks of fraudulent activities.
- Customer Protection
Following KYC compliance, banks and businesses can deny the access of criminals and fraudsters to their websites. It not only helps to protect businesses but also protects the sensitive information of verified customers.
Challenges Associated with KYC Compliance Check
Though Know Your Compliance ensures the safety of both banks and businesses, it comes with several challenges. The most common challenges banks and businesses face during KYC compliance are the following:
- Protection of Data
In KYC compliance, businesses and financial companies collect and verify sensitive information from clients and businesses. Organizations have to deal with such data carefully to ensure data protection while following the regulations of KYC compliance checks.
- Scaling & Automation
During manual customer verification procedures, limited numbers of agents are used to collect and verify the data and verify. However, in the present age, when banks and businesses have become online, it is a challenge to find solutions that grow alongside the volume of KYC checks.
- Cost & Expenses
The costs and expenses to manage KYC compliance are not cheap. For instance, the average cost of video identity verification is $3 per hour.
How to Ensure AML KYC Compliance?
Following are the strategies that help businesses ensure AML KYC compliance effectively:
Creating a Checklist for KYC Compliance
Legal requirements for aml/KYC compliance of customers are different from the working process with businesses and individuals. Considering that, KYC compliance is undoubtedly a challenge depending upon the types of documents businesses have to verify. However, before the initiation of the customer onboarding process, the creation of a proper KYC compliance checklist can make the process easier for both users and companies.
Utilization of KYC Software
KYC compliance software has gained massive popularity over recent years. Some of the key benefits that banks receive from KYC software are as follows:
- A Solution to Scalability & Automation Problem
KYC software reduces the burden on employees, eliminating the need for manual verifications. Conducting all the heavy lifting processes, KYC tools take care of the customer identification procedures while banks and enterprises can focus on other business aspects.
- Convenient Document Verification Process
Most KYC software complies with global standards and is capable of performing identity checks based on the location of clients and businesses. Hence, it reduces the burden on organizations to conduct identity verification procedures as per localized standards.
- Identity Verification & Authentication
Identification and verification of clients during customer onboarding is an integral and significant step toward KYC compliance. KYC software plays a significant role in the first-time identification of users as well as their continuous monitoring at later stages.
- Mitigating the Risk of Fraud
KYC compliance might sound challenging, however, it is essential to reduce the risk of financial fraud and financial terrorism. Fast and accurate user identification allows banks and businesses to keep their operations smooth, ensuring maximum customer satisfaction.
The Bottom Line
With the rise in online businesses and digital banking systems, the need for KYC compliance is now more than ever. Efficient KYC procedures help companies and banks effectively combat financial crime challenges. Moreover, banks must leverage advanced KYC software for effective customer onboarding and smooth operations with businesses.