Importance of Know Your Customer
KYC (Know Your Customer) is the process carried out by companies to verify their clients' identities in compliance with the legal requirements, current laws, and regulations, such as eIDAS, GDPR, and AML. Due to the extensive use of new and developing technologies, it is crucial to define standards that can help fight online fraud. This is where KYC as a service steps in; it responds to the legal and global imperative for all types of businesses that want to welcome a new client.
This affects all sectors, but it is mainly relevant in the financial and banking areas and related sectors like real estate, insurance, trading, and crypto. Ever since 2020, the health situation of many companies has been affected, forcing them to establish a Know Your Customer checklist in order to continue operating without worrying about fraudulent activities.
Simply put, KYC is the process of identifying and verifying the identity of a client to avoid any commercial relations with those related to corruption, money laundering, terrorism, and others. The KYC checklist is the process of verifying the client to check whether he/she/they are telling the truth before giving them access to products or services you offer. This can be done with different methods, but it should comply with legal requirements. There are three main components included in KYC, CIP (customer identification program), CDD (customer due diligence), and EDD (enhanced due diligence).
Keep in mind that KYC laws will differ from country to country. Still, they usually involve collecting enough information to correctly identify individuals and ensure that their activities are not fraudulent. If an individual is determined to be a UBO (ultimate beneficial owner) of the account, they must answer certain KYC questions and checklists to identify them properly.
So, what does the company need to do? Your company needs to collect information about beneficial ownership. In addition to collecting the usual business information, such as the name and place of the business, type, registration number, and others, when opening business accounts, you will also need to obtain the identity of every single individual who has a significant control position or ownership of the business.
Why KYC matters?
A KYC program is very important to avoid fines and because KYC will benefit businesses and customers alike. Due to the extensive use of new technologies, the online world makes it necessary to define standards that can help fight online fraudulency and financial crimes. Here are a couple of reasons why KYC is essential for every business:
- Helping you protect customers and build trust – identity verification can add some friction during the onboarding process; one cannot deny that customers will appreciate you more knowing that you are taking steps to secure their account, protect it from being stolen, vet your marketplace, and more.
- Helping you reduce fraud and financial crimes – indeed, KYC validation won't completely eliminate fraud, but being aware of who you are working with and who your customers are can help you eliminate bad apples, thus leading to less fraud, such as terrorism funding and money laundering.
- It's required – regardless of whether you want to perform a KYC analysis or not, in most industries, you'll need a KYC program to meet compliance requirements. If you do not comply with these laws, you can be fined and, in some cases, even imprisoned.
If you are interested in checking whether you're KYC compliant or not, here is what you need to know. First, you should visit any KRA website and provide appropriate PAN details. For those who are not KYC compliant, follow these steps.
- Offline compliance – first, you should download the KYC form and fill it out. Then provide your identity and residence proof. After that, submit the documents to the relevant authorities.
- Online compliance – this can be done via the website of any KYC Registration Agency. Once you create an account and provide your personal details, you should enter your Aadhaar number and a registered phone number. The information you entered should be verified through an OTP. You'll then be required to upload a self-attested copy of the Aadhaar card, and your request will be processed.
In order to check KYC status, after the submission form online, visit KRA's website by entering your PAN card details. All the information about your KYC compliance application status should be listed there. If your KYC is not verified, your status should be seen as pending. Otherwise, it will appear as "Verified by NDML."
What is KYC due diligence?
Considering that the financial system processes millions of daily transitions, your firm must Know Your Customer. Due Diligence and KYC collate information about your customers to assess the possibility of any risk they might pose to your firm. KYC Due Diligence checklist involves analyzing the customer's lifecycle from onboarding to recognizing critical changes over time and providing regular reviews. Understanding your customers makes sense business-wise, but it is also an incredibly effective tool when talking about anti-money laundering.
KYC Due Diligence needs to be tailored to fit appropriate risk profiles. During such a process, you'll create customer risk profiles that'll determine the levels of CDD each customer will receive. From that risk assessment, every customer will be assigned one of the Due Diligence KYC levels.
- Simplified Due Diligence – if a customer has low-risk suspicious activity, you are only required to check their government ID, without the need to verify their identification.
- Standard Due diligence – if the customer has an average risk of suspicious activity, you are required to perform identity verification through a reliable and independent source.
- Enhanced Due Diligence – if a customer has a high risk, you are required to verify them more thoroughly through EDD.
What is a KYC verification?
KYC verification is the process of authenticating or verifying the identity and address of your customers when they are availing of financial offerings. KYC documentation usually includes a PAN card, an Aadhaar Card, KYC ID verification, and proof of address which will be discussed below. The KYC verification service protects against fraud, money laundering, corruption, and terrorist financing.
KYC verification means going through several steps to ens ure that you can trust your customers. Starting with establishing their identity, understanding the nature of their activities, and considering money laundering risks associated with those customers. Going through an effective KYC process leads to proper risk management, which is important for every company. In addition, KYC compliance plays a huge role in real-time, cross-border payments, building a higher level of trust, collaboration, and transparency while minimizing risks. Let's not forget that a community approach is vital to accelerate the compliance process while creating new and more collaborative ways to address financial fraud.
How to bypass KYC verification?
In the financial industry, KYC documents for companies are a regulatory requirement, and they are enforced globally. Verifying a customer's identity needs to be done through reliable, independent source documents used as a preventative measure to combat terrorist financing and money laundering. Thus, it is crucial to obtain appropriate customer KYC documents before onboarding.
To comply with money laundering regulations, customers must prove their identity by providing KYC documents that offer proof of their name and address. There might be additional KYC verification requirements to provide proof of income for those applying for certain products/services.
Individual proof of identity must consist of a KYC document verifying their name and another verifying their address. It is not permitted to accept a single document as proof of both the name and the address. So, how to do KYC verification? Well, here is a list of documents you'll need.
Proof of Identity (POI) documents required for KYC verification:
- Birth certificate
- Driving license
- Passport
- Member state identity card
- National identity card with the photo of the applicant
- Original notification letter
It is common for POI documents to include photos of the individual.
Proof of Address (POA) KYC document requirements:
- Local authority council tax bill
- Bank statement
- Utility bill
- Mortgage statement
- UK driving license
- Tax demand letter
- Tenancy agreement for the current year
POA will only be accepted if the document is in the name of the individual and has been issued within three months.
Proof of Income documents can include
- Pay slips
- Bank statements
- Income tax returns
The type of documents required for companies and other legal structures will depend on the specifics of the company's legal system, such as the number of partners it has, whether it is listed on a regulated market, and so on. Additionally to individual ID, here are some examples to illustrate the types of corporate KYC documents that might be required:
- Copy of a dated page from the website with the relevant stock exchange
- Copy of certificate of incorporation
- Entry of details held by an appropriate professional body
- Recent audited accounts
- Any documents that establish, manage or regulate the structure
When discussing digital identity, a reliable and appropriate digital ID can be much easier, cheaper, and more secure to identify individuals within the financial sector. In addition, a digital ID can help companies comply with transition monitoring requirements while minimizing weaknesses in control measures. Here are some examples of digital identity verifications that could be used as a part of the KYC procedure:
- Digital APIs (application program interfaces), platforms, and protocols that facilitate an identification/verification and authentication of identity online
- Biometrics that will help identify and authenticate individuals
- Digital credentials that will authenticate identity for accessing online, offline, and mobile applications
- Electronic databases, which include distributed ledges in order to obtain, confirm, store, and manage identity evidence
Some of the most common forms of cybercrime involve identity theft, fishing, smashing, and KYC verification scams. Frauds will lure unsuspecting users into sharing their private details, which can include anything from login credentials to card information, in order to gain access to their accounts. They can do this by:
- Collecting information from social platforms like Facebook, Twitter, and LinkedIn. As they impersonate a bank or a company representative, they request users verify their accounts by providing private information.
- Customers can also fall victim to scam calls where the caller might ask you to install malicious apps and share codes, thus stealing private information and money.
How long does KYC verification take?
Those who are just starting to learn more about the importance of KYC verification are probably asking this question: how long does it take for KYC verification to go through? In most cases, it will take anywhere from 10 – 15 days for KYC to get processed and registered with the KRA.
If you have internet access, as was already mentioned, checking your KYC verification online should be easy. Verification KYC can be done via the website of any KRA. Once you've created an account, enter your Aadhaar and registered phone numbers, and your information will be verified through an OTP. Remember that you will be required to upload a copy of the Aadhaar card, after which your process will be requested.
Being KYC compliant is a mandatory requirement. Not to mention that as an investor, you can benefit a lot from having convenient and digitally secure transactions, among other things. However, you must choose a reliable and trusted financial partner before deciding to make any investments.
