KYC Solutions To Prevent Money Laundering
Since many businesses converted to digital platforms during the coronavirus pandemic, there is now increasing competition in the fintech market for creating the best online business. The Fintech industry is swiftly adopting this trend and has become a dominant partner of financial institutions in the market.
However, there are regulations pertaining to anti-money laundering that are imposed on fintech companies, making it necessary for them to implement KYC solutions. By incorporating robust KYC checks, firms can avoid financial fraud. Among financial institutes, banks are at the top in non-compliance fines and also a hot spot for fraudsters due to the number of online transactions per day. Financial organizations, especially banks, need to employ stringent customer due diligence processes to avoid hefty fines and other online frauds.
What Are KYC Laws?
KYC laws are requirements that encourage companies to verify the identities of their customers. The process involves incorporating KYC solutions from a software service provider. These KYC solutions help companies in customer authentication by verifying the identities through their documents and selfies using various different technologies.
Various authentication measures are included within the KYC solutions. Following are the basic steps:
1.Information Gathering
The process starts with the user entering the required information, uploading identity documents, and registering for account setup. This is done by installing the service on mobile or web platforms.
2.Proof of Identity
The next part requires the user to upload their photo. This photo is proof that the user is real, and is scanned using biometric face recognition.
3.Verification of provided information
KYC solutions then verify the customer by comparing entered information and the documents, including checks for the originality of the documents.
KYC Requirements For Banks
Banks and other financial institutions obviously involve a lot of monetary operations on a daily basis, and if these are not monitored, they bring the risks of fraud, money laundering, and terrorist financing. To start from the basics, the onboarding process needs to include identity verification. There must be various authentication checks to ensure the legitimacy of the customer being onboarded.
Banks lose a lot of money due to fraud and by accidentally getting involved in money laundering cases. Financial institutions cannot survive when such cases affect their reputation, and they also lose money to AML compliance fines. For these reasons, KYC solutions provide customer due diligence and enhanced due diligence procedures to help financial institutions in preventing money laundering.
AML Due Diligence
Customer due diligence is a crucial part of KYC solutions. It involves a process of searching the background of the customer for transactions. And assigning a level of risk associated with them accordingly. Apart from this, possible political connections are also checked as they are considered to be negative points. Usually, money laundering is directly or indirectly related to PEPs (politically exposed persons).
Customer due diligence in banking allows them to meet AML compliance regulations. Also the security regulations of the FATF (Financial Action Task Force). KYC solutions help banks and fintech companies in adding value and gaining customer trust. This trust is gained automatically when KYC AML guidelines are followed to secure the customer payments.
Types of CDD in Banks
Standard Due diligence
Standard due diligence is the process implemented by banks to carry out identity verification through various ways including document authenticity checks. Due diligence requires the customer to declare the purpose of opening an account or making a transaction.
Simplified Due Diligence
Simplified due diligence is the process implemented in the case of those customers who are classified in the low-risk category. Simple authentication of the customers is done in this process using their identity documents.
Enhanced Due Diligence
For the high-risk customers, who are expected to be linked to financial crimes such as money laundering, tax evasion, and terrorist financing, enhanced due diligence is applied. Additional information is required from the suspicious customers. In order to be sure, and the possibility of their presence in global wanted lists is also checked.
Apart from banking, KYC solutions also help in monitoring customers in the fintech industry and allow them to keep checks on ongoing transactions of regular customers. Ongoing customer screening can assist financial institutions in maintaining their growth rate and reduce risks of fraud.
Final Thoughts
Fintech companies are becoming increasingly successful and with this growth, they also need to fulfill compliance regulations. KYC solutions with customer due diligence help add value and create a safe online environment for transactions.
