Whenever a client needs to access their personal information from a bank, there are several processes they need to partake for security purposes. Financial institutions need to ensure no one tries to impersonate their clients to steal private and valuable information. Over the years, financial institutions have created methods to assess and verify whether their clients are real and who they say they are.

Services like KYC providers exist to help financial industries keep track of their real clients and also rule out any illegal activities from them. Once unlawful activities are found within the clients’ data, the financial institution may cease business connections.

A More In-depth Explanation of KYC

KYC has been made mandatory for many financial institutions worldwide to avoid issues that may potentially harm clients and the institution. The KYC procedures are critical to monitor, assess risks, and determine whether their clients are bona fide. The process usually includes face verifications, ID card verifications, and document verifications such as proof of address, utility bills, and biometric verification.

These procedures help identify and prevent major issues, including terrorism financing, money laundering, and other illegal activities that are financially involved. Banks are required to obey anti-money laundering and KYC regulations to eliminate or lessen fraud. An example is when an existing business account has been observed to have a sudden increase in deposit compared to its previous transaction. Situations like these may catch attention and result in questions as to where the money came from. The institution must assess to know where the money came from to make certain money was not laundered.

Effective KYC Processes

Most KYC providers have developed a system to check if clients’ identities are legal and have no commercial relations with suspicious accounts. These are some of those essential processes:

  • CIP (Customer Identification Program)

In the US alone, in 2017, over 16.7 million consumers have encountered identity theft. The issue had a total loss of over 16.8 billion dollars. The CIP commands people to have their identification verified when dealing with any type of financial transaction. This was designed to lessen or eliminate terrorism funding, money laundering, and other corrupt activities.

Usually, financial institutions have a minimum requirement that clients need to show when opening a financial account. These requirements include their name, address, date of birth, and identification number. After receiving a client’s necessary information, the institution contacts several agencies to fully identify the account holder. The client’s provided information is compared to data taken from public databases or consumer reporting agencies.

  • CDD (Customer Due Diligence)

Financial institutions need to assess their clients’ risk profiles to avoid threats. CDD helps institutions identify the clients more and understand their activities based on transactions and records. Due diligence is subdivided into three levels depending on a client’s profile:

  • SDD (Simplified Due Diligence) – For clients with low-value accounts, a full CDD won’t be necessary. The risk of terrorist funding and money laundering with these types of accounts are low.
  • CDD (Basic Customer Due Diligence) – This is where all clients have their information acquired to authenticate their identity and gauge any probable client threats.
  • EDD (Enhanced Due Diligence) – Additional information is collected for high-risk clients to know their complete identity and eliminate associated threats. Even though some EDD factors are specifically set out in a country’s legislation, the deciding factor will come from the financial institutions to take measures and determine threats to make certain their clients are trustworthy.

 

Financial institutions won’t have a hard time identifying the good clients from the bad ones when they have reliable KYC providers by their side.