Encyclopedic Guide to KYC Compliance and its Procedures

KYC (Know Your Customer) is the procedure of confirming the identity of every new customer. This is checked against fake, false, or synthetic identities. The customers are verified so that the financial crimes can be mitigated. Financial institutions are vulnerable to money laundering, which is why they need to conduct comprehensive KYC.

In the era of digitization, there is no space for lengthy and extensive KYC procedures. Businesses need robust and quick KYC methods that can deliver verification results in real-time. This can only be achieved by online automated KYC, which verify customers remotely. By having this type of KYC compliance program, a business can have a seamless customer experience.

KYC Compliance

Let’s have an example from the banking sector where a new customer initiates an account opening request. Now the bank will conduct KYC through the below steps:

Customer Identification Program

This is the first step of KYC where a customer is identified by his name. He provides his personal data to the banking website by filling a bio-form. All the data collected from customers is stored for future verification. 

Personal Data includes

  • Nationality
  • Full Name
  • Date of Birth
  • Address information

The customer also uploads a live selfie for facial verification

Documents Uploading

Documents supporting the information given in CIP are uploaded to the website in the form of an image. The identity documents which are required for verification must be issued by the government and have full information of the customer. The documents that are accepted are listed below:

  • ID Card

It is the authority certificate that the person is a legal resident of that state

  • Driving Licence

This is the permission letter to a citizen that he can drive within the borders of the issuance country

  • Passport

It is an international travel document that has the travel history of a person. This is issued when a person wants to travel outside the boundaries of a country.

Data Extraction through OCR

The data on the paper document is extracted through character recognition technology. For instance name, dob, or address. There might be a possibility that the identity document is in the native language of the customer’s country. Thanks to OCR which has global language support. It means that it can understand and translate all languages. Sometimes the document image can be distorted or of low quality. This could be a problem for traditional KYC methods but not in this. OCR can itself align images for accurate data extraction. Modern OCR is combined with Artificial Intelligence that can read complex fonts and scripts.

If a business needs to run KYC on multiple customers at a time, OCR can help. It can help in setting employee accounts.

Information Verification 

The data given by the customer and extracted by OCR is matched in this step. Facial verification of a user’s selfie and image on a document is conducted for complete identity verification.

AML Screening 

After complete verification and confirming that the person is the same who he declares to be. The customer’s name is screened through anti-money laundering watchlists. This is done to verify the customer’s involvement in financial crimes. AML watchlists have the data of people involved in financial crimes. These lists collect data from all countries and keep updating it.

Consent Verification

Although this is not common, some businesses use it for extra security measures. This is the digital form of traditional connect verification. Initially, the customer just has to tick the checkbox “I want to open a Bank Account”. But in modern consent verification, the customer has to upload a picture of himself holding a consent note in his hands. The consent note can be written or printed, as a business demands.

Concluding the Above

The discussion of the KYC procedures is much widespread. There are also modern ways like video KYC or biometric KYC. There is a difference in the implementation cost of these KYC compliance methods. But it is clear that all businesses should have a KYC compliance program. It will eradicate fraudulent attempts and give rise to legitimate business activities.