KYC solutions for banks – are they necessary?

The KYC process is crucial in the battle against money laundering and financial crime. Customer identification is key as it’s the first step towards achieving success later in the process.
Institutions are feeling immense pressure to comply with global AML and CFT regulations. International organizations, such as The Financial Action Task Force (FATF), have set standards that countries must then adhere to through enforcing regulations in national laws.
These directives, like AML 4 and 5, and preventive measures like client identification (“KYC”), work together to protect against illicit financial activity.

KYC solutions for banks – why so important?

Banks use KYC procedures to confirm that their customers are legitimate, assess risks, and monitor ongoing activity. By requiring ID verification, face verification, document confirmation (like utility bills), and biometric data during the onboarding process, banks can help prevent money laundering schemes and other illegal fraud.
If banks want to avoid fraud, they must follow KYC regulations and anti-money laundering regulations. The responsibility for compliance falls on the banks themselves. If they fail to meet the standards, they will be fined heavily. For example, in just the past ten years USD26 billion in fines have been levied against banks in the U.S., Europe, Middle East and Asia Pacific region for AML- KYC- and sanctions-related offenses, not including damage done to their reputations which is impossible to quantify.
The United Nations has stated that criminals launder between $1.6 to $4 trillion annually, which is equivalent to 2 to 5% of global GDP. Luckily, stricter KYC solutions for banks are being put into place to help prevent this from continuing.

The KYC documentation

May 2018 saw the U.S. Financial Crimes Enforcement Network (FinCEN) implement a new requirement for banks to verify the identity of natural persons or legal entity customers who stand to gain from organizations when those same entities open accounts.
To do this, KYC checks run documents, data, and information through an independent and reliable source that each client is required to provide credentials for. This evidence must be able to prove identity and address beyond a shadow of doubt.
When a corporate company opens a new account, it will need to provide Social Security numbers and copies of photo IDs and passports for employees, board members, and shareholders.

eKYC, facial recognition, and digital account opening

Facial recognition has been slow to emerge in the banking sector, which is undoubtedly the area where it was least expected. Yet, it appears to offer a lot. KYC solutions for banks using onboarding with online facial identification, is still a contentious issue. Why? Covid-19 prompted customers and banks to rely more heavily on digital channels and apps. In the United States alone, 64% of primary checking account openings were completed online in Q2 2020 (and 36% at branch). This is a permanent change.
A recent study from Visa and BAI showed that the trend of increasingly mobile usage would continue after the pandemic subsided. This emphasis on mobile-first focus urges businesses to develop user-friendly onboarding experiences that are fully functional on a mobile platform. To avoid spoofing attacks using a static image, the software usually provides a liveness detection feature during the identification process (a selfie).
Liveness detection proves that the selfie was taken by an actual live person instead of being faked. This type of KYC check is also used for cryptocurrency trading apps, which allows financial institutions to invest in digital onboarding. This includes video KYC (video identification) and biometrics through online and mobile channels.

KYC solutions for banks and Customer Due Diligence measures

The KYC solutions for banks and their policy are a required set of guidelines that banks and other financial institutions use to confirm the identity of their customers. It started with the 2001 Title III Patriot Act, which aimed to stop terrorist activities.
To meet international anti-money laundering and terrorist financing regulations, Know Your Customer procedures must be followed in the early phases of any business connection when signing up a new customer.
Bank’s KYC policies usually consist of four key elements:

  • Customer Policy
  • Collection and identification of customer data (verification, check for politically exposed persons/sanctions lists), also known as Customer Identification Program (CIP)
  • Risk assessment and management (due diligence, part of the KYC process)
  • Non-stop monitoring and record-keeping

To verify a customer’s identity, you’ll need to check their documents against a national ID document and use advanced software for verification.

Visit the Qoobiss website for more information about KYC solutions for your business!