KYC Screening Tools: Why are they Essential to the Financial Industry?

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KYC stands for “Know Your Customer”. It’s much more than a buzzword and is something every financial institution has to perform to maintain compliance. Know Your Customer is a process of verifying who your customers are and what they do. Financial firms should implement KYC processes in order to make certain they meet regulations intended to fight corruption, money laundering by criminal organizations, and terrorism. In this article, we’ll explain exactly what KYC is, how it can be done as efficiently as possible, and why financial firms must implement it.

What Is Know Your Customer?

Know Your Customer or KYC establishes the identity of the customer. The process starts by confirming those who are applying for an account are who they say they are. For financial institutions, this process includes verifying the source of their money is legitimate and assessing their money laundering risk. It should include understanding their business activities or credit risk. The best business practices for KYC include collecting, verifying, and maintaining records of all potential, current, and past customers and running these lists against databases of known criminals. This allows the firm to flag current customers who are now considered a business risk and deal with it immediately.

Why KYC Is Critical for the Financial Sector

KYC is part of the due diligence investing firms must go through to verify who they are conducting business with. This has evolved from a fraud prevention step to a legal requirement for many firms. For example, verifying the source of someone’s funds helps the company meet anti-money laundering regulations.

While rigorous KYC checks can seem like an intrusion or burden for the customer, it proves the firm does its due diligence, laying the foundation for a secure relationship built on trust. Knowing which customers are at greatest risk of committing financial crimes can help a business avoid clients that could tarnish their reputation – and that is incredibly valuable when protecting your image with the clients you keep.

How Firms Can Know Their Customer

The worst KYC methods are time-consuming and labor intensive, such as checking IDs and running multiple background checks. Fortunately, there are tools that simplify this process. For example, financial firms can use an ID verification service such as Cognito’s verification service which allows you to verify the identity of someone and go far beyond the standard background check based on someone’s Social Security Number. They can run a thorough background check on someone based on their phone number, and the depth of the background search increases as you add information like dates of birth and addresses. Automated tools that verify customers’ identities and business information ensure that the same process is followed every time and is as thorough as it needs to be. You want to use identity verification services that meet government standards so that you remain in regulatory compliance.

Conclusion

Know Your Customer is a good business practice for any business. Make sure that you use the proper tools to streamline the process and enhance user experience on your clients’ part.