Breaking barriers and making the world a global village is all good and nice until you face the kind of frauds that you are not familiar with. Therefore businesses are incorporating KYC/AML compliance to verify their clients. Online sellers that fail to comply with KYC have to pay penalties for this negligence. According to a report, between 2010 and 2016, banks paid more than $160 billion in penalties to the US government for not following compliance checks.
Online sellers are emerging to the international level nowadays and they are becoming prone to the associated online frauds. In this case, certain authorities are working to save businesses from such scams. They are trying to do this by making certain laws and regulations for them to abide by. Businesses are under pressure to exercise this robust customer due diligence to eliminate online frauds. These regulations are called Know Your Customer (KYC).
KYC is the pivot point for organizations to ensure that vendors are following the compliance requirements to ensure fulfilling the regulatory demands. Know Your Customers’ compliance varies from region to region but their overall perspective remains the same. The main purpose is to eliminate the fraud risk for online sellers. All these regulations from different regions come under Financial Action Task Force (FATF).
Financial institutes specifically are requiring KYC/AML regulations because this is the sector that encounters the majority of online frauds. The customers are identified by authenticating their provided information, verifying their documents, source of their wealth, their transaction behavior, and monitoring their activities regularly.
KYC Verification Process
Just like the traditional verification process, the online identity verification process completes in the following steps:
Collecting the information:
First of all, the customer is required to submit all their basic information like name, date of birth, and address at the time of account registration.
Providing a shred of evidence:
The website then asks the customer to provide any secondary evidence for identity proof. This assists the system to verify that the information provided by the customer is authentic.
Verifying the information:
Once the user uploads the document as secondary evidence, the validation of the document is scanned by checking its template, by investigating that the document is not forged or photoshopped. After confirming the document validation, the information is fetched through Optical Character Recognition (OCR). The software then verifies the information of the customer.
Verification is mandatory to check the individual that they are who they claim to be. It begins by identifying the individual, authenticating their ID documents, and verifying if they are a threat to your business. The conventional methods of identity verification required the customer to visit the branch to get their verification done. This was a tedious process for both the customer and the staff member assigned for the task. It also had chances of human error and was a time-consuming process. On the other hand, online verification processes proved to be helpful for both the client and the merchant in reducing their physical labor and completing the process faster.
Customer Due Diligence (CDD)
Customer Due Diligence (CDD) is further verification employed by financial institutions to identify their consumers to reduce the risks of financial crimes like money laundering and terrorist financing. At the time of account opening, certain checks are required to authenticate the customer. One such control is to verify the client against sanction lists and Politically Exposed People (PEP).
One-time identification of the individual is not enough. Rather an ongoing process of verifying the client is necessary to get customer’s online behavior thus predicting their future activities. This also helps the merchants to know if the monitored customer would ever be a threat to their business.
Methods to perform Remote ID Verification
KYC can be performed through a lot of measures that add to strengthen the process:
These are the saved information of the customer that once was collected at the time of registering a customer. Databases help in the recurring processes, the customer information is checked against the one that is present against that certain ID document.
- ID documents
Various techniques like AI, HI, and facial recognition are used to prove if the government-issued ID document is valid or not. The documents like ID documents, passports, driving licenses are used to verify the individual.
- 2 Factor Authentication
This method requires users to provide personal identification often called a token at the time of account set up. The 2FA can be an alphabet or number and is particularly useful for creating accounts and password resetting.
With the increased financial activities, the chances of online fraud in financial institutes are also increasing. Regulatory authorities addressing laws thus came forward with the solution to keep the fraudsters in check. KYC and AML compliance makes the process easy for businesses to verify their clients in seconds. The compliance also helps to have ongoing monitoring of clients to keep their records to secure online sellers from having to encounter any criminal activity.