KYC (Know Your Customer) related practices are especially relevant in user and client relationships with businesses and are the first step in a customer relationship with a company.
Its importance in relation to customer onboarding, its relationship with identity fraud and AML controls as well as its regulatory standards, make Know Your Customer, or KYC, one of the main challenges that companies and institutions belonging to any area face. That is why, more and more companies are investing into KYC software that achieve the requirements set by the different KYC compliance regulations.
KYC meaning: Explaining Know Your Customer
What does KYC stand for? KYC full form is Know Your Customer. It is the practice carried out by companies to verify the identity of their clients in compliance with legal requirements and current laws and regulations such as AML, GDPR and eIDAS.
The extensive use of new technologies and the internet makes it necessary to define standards that help fight online fraud. That is why the KYC procedure responds to a legal and global imperative for any type of business that wants to onboard a user as a client.
Although it affects all sectors, being necessary for delicate processes in any industry, it is especially relevant in financial and banking areas, as well as related sectors such as insurance, real state or, for example, trading and crypto.
Many companies, given the health situation in which the entire world has been involved since 2020, have been forced to establish Know Your Customer KYC processes digitally and remotely to be able to continue operating despite the possible restrictions in force that would not make offline onboarding possible.
Although digital KYC processes have been a reality for years, and the leading-sector companies already had KYC partners for their customer acquisition processes that were working to optimise their processes and reduce their acquisition costs, having a long-term Know Your Customer partner now is making the difference between a viable business or one doomed to disappearance.
How Does Know Your Customer Process Work?
KYC is the process of identification and verification of the identity of a client in which a series of controls are applied to avoid having commercial relations with people related to terrorism, corruption or money laundering, among others.
The KYC process consists in verifying that the client is actually who he says he is and giving him access to the services or products he needs. This verification is carried out through different methods, although not all comply with legal requirements.
Different regulatory bodies establish different Know Your Customer requirements. Some KYC requirements include:
- Driving license
- Passport
- Proof of address document
Know Your Customer or Know Your Client process can be carried out both remotely online and in-person at a commercial office or store. When it is done remotely and online, or the process has been digitised, we talk about eKYC (electronic Know Your Customer) process.
And, what is KYC verification? Know Your Customer verification is the process of verifying a customer’s identity to help comply with Know Your Customer regulations.
Know Your Customer Checks
In the KYC or KYC check process, clients are identified, and their identities are validated whenever they open an account and periodically thereafter.
In order to achieve KYC compliance, any Know Your Company procedures must perform these 3 steps:
- Establish the customer’s identity unequivocally.
- Understand the nature of the customer’s activities to guarantee they’re legitimate.
- Assess money laundering risks associated with the customer.
This can be achieved by companies by integrating KYC protocols in compliance with all the legal requirements that counts with: a compliant identity proofing software to perform the digital onboarding legitimately, a customer due diligence program, and carry out an ongoing monitoring of the data and customers’ activities within the company.
KYC Regulations
KYC Compliance in the World
The KYC process requires the financial sector to adhere to its regulations worldwide, which implies that identification with selfies or images is not valid for financial transactions due to its low range of technical security, the weakness of electronic evidence and the lack of its integrity.
Therefore, the level of security provided by these types of solutions is low, far from the legally required security standards for formal customer identification according to the most demanding regulations in this area.
European KYC Regulation
AML5 (or 5AMLD) together with eIDAS define the regulatory framework in the financial sectors in Europe and introduces, for the first time in history, fully secure digital identification methods so that customers can interact with their bank, and insurance agencies, administration, etc completely remotely.
As part of the newly revised 6th AML directive, the definition of money laundering across the EU has been harmonized with the aim of closing any loopholes in the national laws of member states. A more detailed description of how the 6AMLD reflects the changing methods of criminal investigation and legislative priorities is provided in a list of the 22 predicate offenses involved in money laundering, which include tax crimes, environmental crimes, and cybercrime money laundering.
This means that companies can acquire customers in any country in Europe, within an open and homogeneous market of 508 million people, with just one click thanks to QES+ onboarding in full KYC compliance.
Learn about these regulations by downloading this guide on the new regulatory scenario.
KYC (Know Your Customer) Benefits and Advantages
Thanks to the most advanced artificial intelligence technologies, onboarding processes have been totally improved and digitized, avoiding any type of friction and difficulty for the user to access the remote contracting of products and services in a totally secure way not only in banking but in all industries.
Not all Know Your Customer service providers equip their systems with the latest techniques and tools. For this reason, it is important to trust comprehensive KYC solutions that accompany the organisation and the user throughout the onboarding process, as well as subsequent authentication needs with the highest regulatory and technical guarantees.
Otherwise, it is very likely that the solution is not fully compliant with current regulations, and it does not provide all the advantages that should be given by integrating this process. Fixing on user experience and commitment to a quality procedure is crucial.
Asynchronous Video IDentification with a Qualified Electronic Signature in a matter of seconds and from any device and through any channel is now possible. Complying with the most demanding global regulation (AML5, eIDAS), acquiring a customer has never been easier. There is a lot of buzz on the market around the various KYC solutions available for digital identification and existing KYC services. For this reason, it is important to have a suitable reference partner for the Know Your Customer needs that the organisation may present now and in the long term.