Compliance with KYC regulations is a must for the financial industry but also for many other branches of business. KYC stands for Know Your Customer and it refers to the process of verifying the identity of potential customers. Effective KYC processes are the foundation of successful compliance or risk management programs. In recent years the demands for meeting KYC regulations are growing. Stricter regulatory requirements come into force with anti-money laundering (AML) processes in mind. Financial institutions and other companies that are obliged by the law to perform identity verification for potential customers are dedicating more resources and time to KYC compliance processes. What does  KYC compliance consist of, why does it need to be implemented and what actions hide behind it? In this article, you will find all the information you need to know.

What is KYC?

KYC stands for ‘Know Your Customer’ and it is a set of legal regulations most often aimed at financial institutions and other legally designated entities to verify their customers’ identity. Additionally, it’s supposed to help obtain relevant information required to do business with the interested party. Its main purpose is to make sure customers’ activity is legitimate, and that no fraud, corruption, terrorist financing, or money laundering is taking place.

Compliance with KYC refers to the steps taken by a business to:

  1. Identify the customer and verify their true identity.
  2. Assess customer risk.
  3. Identify the beneficial owner and take measures to verify that person’s identity.
  4. Monitor users’ behavior and keep records.

The scope of KYC is not only limited to authenticating clients. KYC is an umbrella term for all procedures designed to know the identity of an interested party. It stretches to verifying merchants (Know Your Merchant), businesses (Know Your Business), or even patients (Know Your Patients).

What are the main risks of the lack of KYC procedures?

  • Increased risk of money laundering and terrorist financing 
  • The lack of monitoring and control of transactions 
  • Enabling identity theft crimes
  • Reputational damage
  • Heavy fines
  • Withdrawal of the business permit
  • Criminal liability

Legal Foundations of KYC and compliance

In order to combat illegal activities which plagued the financial world, governments and regulatory bodies all over the world have been creating new policies. The growing numbers of financial crimes lead to the creation of the bases of the KYC policies that we know today.

The KYC procedures that we know today are the result of years of creating and improving regulations. In 1990  The Financial Crimes Enforcement Network (FinCEN) was created to combat domestic and international money laundering, terrorist financing, and other financial crimes. A year later the first EU Directive was established. The act introduced the importance of Customer Due Diligence (CDD) and Know Your Customer (KYC) procedures. In 2001 as the result of the terrorist attack on 9/11, the United States enacted The Patriot Act to combat terrorist financing. In the following years, next EU  Directives were created as a response to worldwide terrorist attacks.

The main legal basis for the Know Your Customer regulations in Europe and the United States are the following:

How to implement efficient KYC Compliance

Customers are used to quick and frictionless onboarding. When the process is too long or too complicated they may find another service provider with a more customer-friendly process. What is important when choosing the right KYC process in order to improve customers’ experience. KYC procedures can be tedious for a user so it is important to implement them in a smart way, for instance by outsourcing the identity verification to a company that specializes in KYC compliance and implements digital verification solutions to ease customer onboarding.

Main Elements of KYC Compliance

KYC process outlines various verification methods including document verification, face verification, address verification, PEP and sanction list monitoring, and more. These methods help companies understand their customers better as well as know the risks associated with them. The process of KYC verification consists of a few steps:

  • Data collection

Institutions begin their KYC procedures by collecting basic data and information about their customers, often by using electronic identity verification. The user fills out a form with information such as first and last name, nationality, document number, or date of birth. The information required may vary depending on the institution that is performing the KYC process.

  • Verification 

Once basic customer data is collected the user presents an identity document to compare the data from the form with the information on the document. Authenticity checks are performed on the document to make sure it is a legitimate government-issued document. The user’s face is compared with the photo on the document to make sure that there is no identity theft and that the user is who they say they are. Additional documents like proof of address are verified.

  • Risk assessment

When it comes to assessing the risk involved with the customers’ onboarding there are a few factors that are taken into consideration. The company checks the results of the identity verification and the results of the PEP and sanction lists check, to make sure that the potential new user is not on any monitoring list or is not a politically exposed person. All of that information creates a users profile that will determine the users’ risk assessment, the scope of future cooperation, and the level of monitoring. Depending on customers’ risk they may be subjected to either simple Customer Due Diligence or Enhanced Due Diligence.

How Is KYC Compliance implemented Online?

Electronic KYC (eKYC) verification brings the KYC process into a digital world. That means that the whole verification procedure is done online. Nowadays, some institutions still conduct customer verification in a traditional (manual) way, however, the vast majority use a digital customer verification process. 

The benefits of an online KYC service:

  • Speed

The manual process can take days to complete as opposed to online verifications that can be done within minutes. The speed of digital verification increases customer satisfaction and conversion rate. The use of Optical character recognition (OCR) speeds up the process and it can also be used to spot errors in fraudulent documents.

  • Easy access 

The verification process can be carried out from anywhere in the world. The only requirement is a camera device and internet access.

  • Accuracy

The eKYC process is more reliable and has a lesser margin of error due to the fact that new technologies such as artificial intelligence and face recognition are used during the verification. 

  • Adaptability

The online process is more adaptable and can be easily integrated via an API solution.

  • Multiple Checks

Multiple checks can be done at the same time as the verification process, they can run in the background during the identification process. Automated technology can also be utilized to carry out fraud checks on documents.

KYC Services by Fully-Verified

Fully-Verified’s video identifications done on a live video call with a verification specialist satisfies the highest levels of KYC compliance regulations. Due to the fact that they are backed by the latest technology, automated document recognition, OCR, face recognition, AI, and machine learning they are safer than physical face-to-face identifications done manually. The verification scenarios are customizable, our workflow can be changed when the new regulations or compliance policies are established. 

Our video identification is a quick, convenient, and extremely secure method of verifying customers’ identities online. Fully-Verified offers a range of KYC-related services, that includes different options of identity verification. 

  • Live-Verify consists of a live video call with a trained operator. A user connects to an operator who guides the user through the verification steps.
  • Self-Verify is an automated identity verification solution. Users go through the whole procedure on their own. The whole process is recorded on live video from start to finish, and double-checked by a trained agent once the verification is completed, to ensure the highest level of security. 

By handing over KYC responsibilities to Fully-Verified we can assure:

  • Elimination of fraud
  • Faster onboarding and approval
  • Immediate availability and scalability
  • Flexible and easy customization

Fully-Verified offers a full video KYC service, tailored to the specific needs of different industries. Video verification service offered by Fully-Verified, with a human specialist, guarantees that the process is foolproof when it comes to deep fake technology and digital manipulation process. Apart from identity verification solutions, we offer standalone verification options:

  • Sanctions and PEP checks allow determining who is and who is not appropriate to do business with. It includes lists issued by governments and financial authorities. We currently check over 350 databases around the world.
  • Proof of address verification confirms that the address stated for the verification purposes is actually a residence address and ties the user to a specific location.
  • Manual KYC service is a customized service that can suit different business expectations.

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Fully-Verified was created as answer to its founders collectively losing over $150 000 to various types of fraud in their eCommerce businesses.

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