KYC Compliance – A Regulatory Obligation for Businesses to Verify Clients

The advancement in technology has helped businesses automate their business operations and at the same time made them prone to different fraudulent activities. This has led to the need for a robust KYC verification which not only helps companies prevent all kinds of frauds but also makes them stay compliant with the global regulations and avoid penalties and hefty fines.  

KYC is a procedure to validate the identity of clients before any company establishes a relationship with them. It involves verification of different kinds, document verification and identity verification are most important in them. The know your customer laws were firstly implemented in the financial sector and then they were incorporated into the non-financial companies as well. When KYC compliance is carried out in different sectors, it is called Know Your Transaction (short for KYT), Know Your Business (short for KYB), and Know Your Patient (short for KYP).

What Does KYC Compliance Mean?

Know your customer compliance is a regulatory obligation of both financial as well as non-financial firms. Obliged sectors employ the KYC process and validate their clients regularly as per the regulatory protocols. Complying with KYC regulations prevents sectors from heavy penalties, combat fraudulent activities, and mitigate sophisticated crimes including terrorism funding as well as money laundering.

Requirements of KYC Compliance

Although the KYC laws vary from country to country the following are certain requirements found in all;

• Establish client verification procedures
• Identify clients using their official identity documents 
• Validate sectors through the corporation documents along with verifying the UBOs
• Managing customers’ risk profiles
• Follow AML guidelines whenever required

Which Sectors are Obliged to Follow KYC Regulations?

KYC regulations have been made mandatory for many sectors. Below is the list of the industries that are obliged by the regulatory authorities to follow KYC regulations.

• Real estate sector
• Financial firms including insurance companies, banks, mortgages, brokerage houses, etc.
• The Healthcare sector includes hospitals, medical stores, in-home care providers, online drug providers, etc.
• Fintech that includes digital payment solutions, crypto exchanges, mortgage providers, etc. 
• Legal sector
• Firms that deal with precious art and metals
• The gaming world includes lottery businesses and e-gaming platforms etc. 

KYC Onboarding Process

• In the first step, the client has to give their personal details. 
• Then the client has to provide their identity documents for verification.
• All the data is then extracted using OCR software.
• AML screening is carried out to check high-risk profiles.
• Transactions of the clients are monitored to check the patterns of their money flow. 

How Online KYC Protects Businesses?

KYC and AML solutions are essential for all industries as they help them understand who their clients are before they start a business with them. It facilitates them in performing KYC due diligence to validate customer identities in order to avoid money laundering, data breaches, and other kinds of fraudulent activities. KYC compliance is a great bet for businesses that protects them from reputational damages occurring due to external breaches from creeping into the system. As the fraudsters are becoming smarter to deceive verification processes, the regulations for money laundering and other financial crimes are becoming stricter across the globe.

Advanced verification solutions perform a thorough analysis of then clients or b businesses that any particular entity is planning to start a business with. Comprehensive due diligence is carried out to identify clients, validate the UBOs of the business, and check that the individual does not appear in any of the global wanted sanction or PEPs list. 

As digital KYC solutions can also access the risk profile of any client, the individuals that are classified as a greater threat are undergoing further security checks.  With the changing regulatory landscape, risk profiles are also updated continuously. Regulatory bodies have made KYC compliance mandatory for all the financial sectors throughout the world. They have placed hefty fines for all those who do not abide by the global KYC and AML standards. Thus, to keep businesses safe from any fraudulent activities and to stay compliant with the global regulations, KYC solutions are a must.

Final Thoughts

With the progress in technology, businesses are shifting towards digitization and online KYC is perforating in demand. Not each part of the KYC services could be outsourced, but digital client verification shares a great compliance burden. Digital KYC verification helps companies not only onboard authentic customers but also track their activities. This ensures greater security for industries and their precious clients. Furthermore, it helps different sectors to follow KYC compliance which they are obliged to so that they can prevent themselves from penalties and hefty fines.