KYC Onboarding is a process including steps that are used by financial institutions for identifying and verifying their customers. It is a necessary requirement in banks and financial institutions for mitigating money laundering. It also reduces the threat of terrorism financing and fraud.
KYC Onboarding Process Steps
Following are the basic steps in the KYC onboarding process:
1. Customer Identification:
By collecting information about customers such as name, date of birth, and proof of address customer identification is done. Mostly, government-issued IDs are used to verify identity at the initial stages.
2. Customer Due Diligence
Secondly, the due diligence process involves verification of the data accuracy of customers’ information. The process compares the collected information with the database or credit bureaus. For high-risk customers, Enhanced Due Diligence is required to deeply verify the risk profile of those customers.
3. Risk Assessment
The third step of the Onboarding Process is risk assessment. It speculated the risk level in any financial activity, location, or relevant factors.
4. Ongoing Monitoring
The fourth step includes monitoring customers’ accounts and activities over time for any suspicious activities. SARs (Suspicious Activity Reports) are submitted to the regulatory authorities in case any irregularities are noticed.
5. Sanction Screening
Financial Institutions must have a screening process for their customers’ identity verification. It should have transaction history and other relevant information that works as an additional filter. Sanction Screening ensures that customers are not engaged in any activity parties sanctioned by governments.
6. Record Keeping
Detailed records must be maintained in a centralized database like a blockchain. In this way, data security is enhanced, and verification of customer information becomes easy.
7. Staff Training
Knowingly, Staff Training is highly imperative for employees to ensure the KYC requirements are fulfilled during KYC onboarding.
Advantages of KYC Onboarding
1. Reduced Fraud
Onboarding reduces fraud through the identity verification of customers. When customers are bound to declare their actual identity before opening up a bank account, it protects the customer’s identity and the company from fraud and identity theft.
2. Enhanced Security
Onboarding Process ensures that only legal and legitimate customers are given access to the company’s products and services. Hence, the risk of cyber attacks, hacking, and online fraud is greatly minimized. Also, data breaches are stopped due to enhanced security checks in KYC.
3. Ensures Compliance
As KYC Onboarding is a basic requirement in most firms, it ensures that everybody is compliant with the updated KYC and AML regulations. Almost every sector that has KYC needs to fulfill the compliance requirements as well.
4. Builds Trust
KYC Onboarding helps build customer confidence in the company’s services. When a company guarantees foolproof and secure financial transactions, it strengthens the trust-based bond between the customer and the financial institution.
5. Improves Customer Experience
KYC onboarding can be streamlined with the use of digital tools such as online verification, reducing the time and effort required from customers. This can improve the customer experience and increase customer satisfaction.
Disadvantages of KYC Onboarding
Time-Consuming
Usually, KYC Onboarding is time-consuming for both the customer and the company. Customers may go through a hectic and time-taking process of submitting their identification details and documents. They might have to wait for verification and further processing. Similarly, the verification process may be hectic for the firm and cause a slowing down of the operations.
Costly
Considering that compliance itself incurs a cost, we should regard KYC onboarding as an additional cost to the current compliance system. Technologies for KYC usually cost a lot more than traditional KYC mechanisms.
Complexity
The KYC Onboarding process can become complex and especially difficult for individuals in many cases. Multiple jurisdictions and different regulations can confuse an international compliance official. Thus, it can increase the risk of errors and non-compliance.
Inconvenience
Some customers find it inconvenient to go through the KYC Onboarding Process. They might think that it is intrusive or interfering with their privacy so they become reluctant or defensive to share their information.
Inequality
Sources claim that KYC has caused inequality in many jurisdictions and countries. This is due to the stereotypical behavior of many KYC regulators and other issues.
KYC Onboarding Compliance Requirements
For a customer to meet KYC Onboarding Compliance requirements, he or she must have the following documents for identity verification and authentication.
- Proof of Identity and Address
- ID Card
- Facial Recognition (Through Selfie Camera or Physical Appearance)
- Biometric Verification
- Document Verification
Further requirements include a passport, a driver’s license, and a utility bill.
Guidelines for Smart KYC Onboarding
It shows the latest concept in the KYC Onboarding process. The system performs all activities, from identity verification through a selfie camera to account activation, within minutes, and onboards the customer.
Many developing countries consider it an unsafe approach. But in economies like China, the USA, and the UK eKYC is now taking over the existing KYC.
Final Thoughts
Finally, the KYC Onboarding Process is a necessary procedure for every organization at different levels. One must understand the importance of KYC (Know Your Customer) and the risks associated with non-compliance. To stay ahead in the game of compliance and grow the business in a legitimate way, one must implement robust KYC and AML compliance systems. KYC AML Guide provides comprehensive knowledge on the KYC/AML regulatory framework.
