Know Your Customer (KYC) is a term used to describe the policies or frameworks incorporated by FIs (Financial Institutions) to verify the legitimacy and trustworthiness of potential clients. This is done to better protect against fraud and money laundering operations. The practice of money laundering is not a recent invention. Indeed, the precedent for money laundering itself is thought to have been set at least two millennia ago by early Chinese merchants and traders. However, whilst the concept itself may be old, the problem is all too current, and money laundering today is still very much alive and kicking. In fact, it’s thought that roughly 2-5% of annual global GDP comprises illicit money.
The importance of Know Your Customer regulations is clear. Especially when it comes to the world’s pursuit of tackling money laundering and fraudulent financial activities. FIs that fail to meet today’s KYC standards of compliance risk having huge financial sanctions levied upon them. For the individuals of these organisations, the consequences can extend beyond purely fiscal, and non-compliance can lead to a jail sentence. With that in mind, as Impress Solutions provide fully KYC compliant features as standard in our Forex trading application, we wanted to look at what these guidelines usually consist of, and they should be adhered to.
What Does KYC Compliance Consist Of?
For an FI or bank to pass muster with regards to KYC and AML (anti-money laundering) regulations, there are several things they must do. Ordinarily, the process can be thought of as boiling down to two or three main processes:
- Customer Identification Program
- Customer Due Diligence
- Enhanced Due Diligence
Customer Identification Program (CIP)
The customer identification program (CIP) is carried out in the first instance and is how banks and FIs collate information about the potential customer. The data collected is personably identifiable information (PII) which includes the client’s full name, date of birth, passport number, etc. This user-provided information is then verified against supporting documents during the customer due diligence (CDD) stage.
Customer Due Diligence (CDD)
The extent of the due diligence carried out by a bank should be done on a risk basis. As an absolute minimum, FIs must obtain documentation from potential clients which can serve as verifiable proof-of-identity. Photo documentation – a picture of their passport, for instance – is required so that the organisation can screen official documentation against the initial information provided by the client. In certain instances, however, there comes an elevated KYC/AML risk. In these cases, enhanced due diligence (EDD) is necessary.
Enhanced Due Diligence (EDD)
There are certain parties and situations which bring with them a greater risk to a bank or FI. If the client is a PEP (politically-exposed person), for example, then this automatically necessitates greater scrutiny and EDD. This is because of the threat of bribery and corruption that such people of power are often exposed to. Businesses which are cash-intensive are another example, given that they’re so inherently prone to money laundering operations. Where a more forensic lens is required to verify a customer, more enhanced KYC solutions are often needed.
Our KYC/AML Solutions
Here at Impress Solutions, our foreign exchange trading platform, isCT, enables full KYC compliance through its various features. These include:
- A ‘5-green light’ system that all clients must pass before they can proceed with a bank or FI.
- An integrated sanction checker which helps easily identify prohibited individuals.
- Direct connection with third-party AML software vendors to help automate verification.
- Configurable permissions allowing you to fully control who can create, view and edit documents, thus enhancing transparency and accountability.
These easy to use features make the entire KYC process more efficient and inexpensive. This is especially attractive for FIs when you consider that the amount of money spent, the number of employees deployed on KYC and the average onboarding time for a client are all consistently rising.
The Future Of Know Your Customer
The world is automating at an incredible pace. The advances being seen in computing, areas such as Artificial Intelligence and Big Data, for example, are already being applied to industries across the globe. Banking and finance is no exception to this. In recent times, connectivity has become something of a buzzword, but this is with good reason. With more users on more smart devices, the financial world is only going to become more integrated. This means that KYC processes will have to extend to different technologies and platforms, so that no fraudulent parties slip through the net, as it were, putting an FI at risk as it does so. In summary, smarter more streamlined Know Your Customer solutions will capitalise upon new data and technology solutions to improve the Know Your Customer process whilst simultaneously streamlining it and saving FIs money, something we can all be excited about.
Meeting KYC standards of compliance is imperative and helps protect an FI in two ways. It helps mitigate illicit money passing through your organisation. It also removes the threat of sanctions stemming from a lack of compliance. So, if you’d like to find out more about our Fintech solutions, which ensure complete KYC compliance, then get in touch! Contact Impress Solutions today on 01708 759 760.
