Clients are the real asset of any company. They can either take the business to another level or could destroy it completely. This is the reason why companies validate their clients whom they are going to deal with. KYC process is the procedure to verify a client and ensure that they are not involved in any of the financial crimes including high risk transactions that could be detrimental for the business.
In this era of digitization, frauds are increasing significantly. The financial and all other sectors are obliged to meet the following requirements to adhere to global KYC due diligence guidelines and avoid paying fines.
1- Customer Identification Program for High-Risk Clients
The customer identification program is an important part of the client due diligence process, which requires businesses to ask people for their identifying information. Its purpose is to confirm the identification of a customer who wants to conduct a money transfer with a specific bank. To comply with anti-money laundering regulations, financial institutions were required to design and include client identification procedures into their privacy policies in 2003.
Depending upon the nature and scale of the company, each has its CIP method. As a result, other documents may be required for verification. Driving licenses and passports are the most frequently requested documents by banks.
Whatever documentation or information about individuals and businesses is requested, it is to ensure that they are genuine and do not appear on any forbidden lists, so that false clients and high-risk clients may be identified.
2- Customer Due Diligence for High-Risk Customers
Customer Due Diligence for banks encompasses a wide range of client identification procedures. It is performed to anticipate potential hazards that may develop due to some customers, which is why it is necessary for secure client onboarding. Analyzing customer behavior and predicting the transaction pattern that the client has been most inclined to follow is a major purpose of due diligence financial services. In an ever-changing regulatory environment, digital identity authentication can be quite beneficial. It helps companies detect dubious behavior and categorize the clients according to their risk profiles to check those who can pose a threat to them. This is how entities protect themselves from sophisticated fraudulent activities.
The regulatory bodies have not established any specific criteria or techniques for doing customer due diligence, leaving institutions free to use whatever tools and equipment they like. Many companies want a huge amount of information during the application process, such as past financial statements, income slips, banking references, and source of cash, among other things. The goal of this data is to examine the customer’s background and behavior in order to forecast future hazards that may be associated with the client.
All of this is due to FinCEN’s rigorous demand that banking institutions report any dangerous or suspected conduct immediately. And the company won’t be able to do it effectively until it has a thorough understanding of its customers’ behavior and history.
3- Enhanced Due Diligence for High-Risk Clients
EDD process basically means to verify individuals and ensure that they are not in the wanted, sanction, or any PEPs List. Tracking and handling transactions are also some of the fundamentals of an EDD procedure.
EDD (Enhanced Due Diligence) is the latest and more detailed type of e-KYC for high-risk profiles that checks their ambiguous source of income or irregular transactional behavior. The clients who are categorized as high-risk profiles, after the customer due diligence, have a greater probability to be indulged in financial crimes including terrorism funding and money laundering activities to carry out their illicit purposes. Such profiles need to be tracked continuously to avoid any fraudulent activities and also protect businesses from paying heft fines by staying non-compliant with the global customer due diligence requirements.
In a word, combining an e-KYC solution with machine learning is critical for identifying and dealing with customers who conduct high risk transactions and pose a variety of risks to firms. Due to such consumers, firms may face substantial fines or business owners may lose their businesses. For an internet firm that plays a critical role in this sector, digital KYC streamlines identity verification. Moreover, it helps firms to follow KYC compliance and prevent it from hefty fines and penalties. In an ever-changing regulatory environment, smartphone authentication systems can be quite beneficial. It will constantly change at a greater pace in the future.
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