KYC Regulations in Banking: A Solution To Mitigate Financial Terrorism

Although online financial services have revolutionized in this digital era, they come up with security risks. KYC regulation is essential to have authentic clients on board.

Moreover, it does not only identify customers initially but also monitors them over time to prevent money laundering and illegal transactions. The banking industry has to suffer from financial crimes every day as per the report, there has been a spike from 3.5 billion USD to 10.3 billion from 2019-2022. 

What is KYC Compliance in Banking?

Know Your Customer (KYC) is a process of verification of a client’s identity while onboarding. KYC compliance is required to ensure that the customers are authentic and real. 

In this time of digitalization, financial institutions are more victims of illicit criminal activities. There’s also the need for banks to maintain a significant amount of trust with their customers. Thereby, KYC solutions identify authentic customers and help firms increase their efficiency. 

Why is KYC Compliance Essential for Banks?

Financial terrorists use bank accounts to hide money, to perform illegal transactions, and for money laundering. Terrorist activities may lead banks toward heavy fines for being suspected of involvement.  

KYC regulations safeguard financial organizations from money laundering, scams, and terrorist financing. Moreover, it enables banks to stay compliant and enhance the banking experience with their corporate clients. Additionally, it avoids the growing prevalence of financial crime across the world. It also allows financial associations to get a better insight into their customers’ businesses, which can eliminate the plague of money laundering.

Basic Step to Execute KYC Process 

• In the KYC procedure, first of all, an organization is required to establish a customer’s identity. For this, basic information is collected from customers about their business operations and identity. This may include the names of the company’s directors, identity card number, address, company number, business address, registration number,  etc.

• Secondly, the information collected is verified to ensure the nature of customer activities. It allows financial organizations to reach customers’ risk profiles. The customer due diligence process ensures the client’s risk profile to make an organization aware of future threats.  
• Afterward, proper monitoring is required to overcome the customer’s risk profile. Banks need to check their client’s transactions on an ongoing basis, it provides an oversight of financial transactions and accounts based on thresholds.

5 Key Benefits of KYC in Banking

Know your customer solutions are the backbone of success in bank sectors. It has brought the following 5 key benefits to the bank industry. 

KYC services help banks to comply with legal and regulatory requirements that are linked to customer verification and identification. These procedures ensure that organizations meet their obligations to control money laundering, fabrication, identity theft, terrorist financing, and other illegal transactions. 

By having contact with KYC service providers banks can evaluate the risk profile of a customer or entity. Moreover, the act of verifying the identity of customers and screening them against embargo lists, organizations can diminish the risk of financial and reputational damage.

While having a customer on board, a proper verification process unveils the hidden risk with a particular client.KYC measures provide multilayered verification, it mitigate the risk of fraudsters on board.  

Now there is the facility of automated KYC services, human beings are no longer required to perform every action, and many AI-based models have replaced the human effort. Moreover, these models are efficient and quick in verification processes. 

Basic KYC Requirement to Prevent Frauds in Banking Sector

To execute a proper KYC process, an organization requires various documents such as identity cards, educational certificates, utility bills, income tax, etc but these documents are required as per identity and address information. 

The documents required as proof of identity are the following:

1. Passport
2. Driving license
3. Bank statement
4. Pay slips
5. Birth certificate

As proof of address, the following documents are used:

1. Utility bill  
2. Local authority council tax bill
3. UK driving licence
4. Bank statement  
5. Mortgage statement
6. Tenancy agreement for the current year
7. Tax demand letter

Conclusion

KYC regulations have secured organizations regarding fraud and other illicit activities of criminals. The KYC process verifies a customer’s identity through data collection, analysis, and monitoring. Scammers are filtered out during the verification process thus an organization becomes secure from future risk. The bank sectors must execute the KYC verification processes to protect themselves from every possible future risk.KYC procedures are automated nowadays, and advanced AI and ML-based models are working with algorithms. These algorithms are smart enough that they can verify documents quickly and more efficiently.