The beginner’s guide to Knowing Your Customer (KYC)

New to KYC? Here’s your at-a-glance guide to the ins and outs of Knowing Your Customer.

Know Your Customer, or KYC, helps businesses comply with anti-money laundering regulations, reduces the risk of fraud and other financial crimes, strengthens customer relationships, and makes customer onboarding easier and more efficient.

It’s important to know who your customers are (and that they are who they say they are) to reduce fraud and to build a solid, trusting customer relationship.

Like with AML (Anti Money Laundering), certain regulated industries have to comply with KYC. These are:

Financial services:

–      Asset managers

–      Banks, building societies and credit unions

–      Consumer credit services

–      Crypto exchanges

–      Money transfer services

–      Payment institutions

–      Safety deposit services

Other industries

–      Accountants and auditors

–      Art dealers (high value)

–      Estate agents and letting agents

–      Financial advisors

–      Gaming operators

–      Lawyers

–      Tax advisors

But even if you’re not operating in one of those industries, KYC is still best practice for keeping your business – and your customers – safe and protected from fraud. "The UK’s Office for National Statistics found a 14% increase in total crime in the year to September 2021, driven by a 47% increase in fraud and computer misuse, which surged during the Covid pandemic." KYC can help any business to prevent big losses incurred by fraud.

The KYC process has recently become more stringent due to increased regulation. Financial institutions must now collect more detailed information about their customers and perform more frequent KYC checks. This has created a challenge for many businesses, which may need more resources to comply with these new requirements.

You must now follow certain procedures to comply with KYC standards, depending on the size and nature of your business. And there are certain times during the customer lifecycle when KYC checks are necessary:

Customer risk assessment: prior to signing up and onboarding your new customer

Customer due diligence: at the moment when you agree to onboard your customer

Ongoing monitoring: at staged points throughout the customer contract (eg 6 months, 12 months etc)

Transaction monitoring: at any moment when large sums or bulk orders are completed during the customer’s contract

Suspicious activity reporting: triggered when any unusual activity occurs on the customer’s account

Keeping records of the customer's information helps businesses to comply with KYC regulations and ensures that data protection rules have been followed by businesses while gathering and storing client information. This includes ensuring that the data is securely stored and only accessed by authorised personnel.

Types of KYC Checks

Businesses should choose the type of KYC check appropriate for their needs. The different types of KYC checks that can be performed include:

Identity checks: Confirm the customer's name, birthdate, and other personal data.

Document verification: Customers' identification documents, such as their passports or driver's licences, are checked as part of this process.

Biometric authentication: uses biometric data, such as fingerprints or iris scans, to verify the customer's identity.

Address verification: Checking that the customer's address is valid and verifying that they live there.

Financial history checks: These checks involve reviewing the customer's financial history to assess their creditworthiness.

Criminal record checks: Checking for any criminal convictions or pending charges against the customer.

Sanctions checks: Checking whether the customer is on any sanctions lists, such as the UK's HM Treasury list or US Treasury's OFAC list.

PEPs checks: Understanding if the customer is a politically exposed person.

I’d rather skip doing KYC checks. Is that possible?

If your business is in a regulated industry and you don’t meet KYC requirements, you can be fined by regulators and, in more serious cases, face criminal prosecution.

The most prominent recent case in the UK was Santander, who had failed to put proper KYC and AML checks in place since 2013. (It’s no coincidence that they went through over four different Compliance Managers during the same time period.) The FCA fined Santander a record £108 million. More embarrassingly, penalties for non-compliance tend to make the headlines – especially when you’re a big company or financial institution like Santander, NatWest (another recent wrongdoer). Such negative press can damage to your brand and the reputation of your company, discouraging prospective customers and potential investors in the future.

If you’re not in a regulated industry then you don’t have to worry about facing fines – but you do have to worry about facing fraud. And seriously, with the right technology solution in place, KYC doesn’t have to be a burden. In fact it can enhance your relationship with your customers.

For our AML and KYC checks APLYiD uses multiple automatic verification methods and performs checks against all global databases with incredible accuracy, allowing you to cut your referral rates to an average of less than 10% (vs a market average of over 30%).

We’re constantly up to date with the very latest AML compliance regulations all over the world, so no matter where your customers are we can verify them. And because it’s automatic, it’s both superfast and super simple, too.

KYC can be a useful tool in your company’s arsenal when it comes to onboarding and retaining customers – all while protecting your business from fraud. Come talk to us about how we can make KYC checks work for you.

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