Know Your Customer (KYC) is a significant part of the fight against money laundering.
Simply put, KYC is about verifying the customer’s identity and whether they are who they say they are. If a customer fails KYC checks, the business relationship with the customer should be halted, as it exposes your business to the risk of fines, financial crimes, and reputational damage.
Through your KYC checks, you should:
- Establish the customer’s identity
- Understand the nature of the customer’s activities
- Assess money laundering risks associated with that customer
Why is KYC important?
Recent figures from Experian suggest that up to 1% of all current account applications are fraudulent, and identity fraud has increased by 10%. These fraudulent applications can be associated with money laundering, terrorism, and other illegal schemes.
KYC checks are carried out to verify the identity of the person opening the account to hopefully combat these schemes.
What are KYC Checks?
KYC checks assess whether the customer is a real person and the associated risks of doing business with them. These checks typically include checking official photo ID, ensuring the customer’s face matches the one on the ID, and having documented proof of address.
Some of these checks may also be ongoing. For example, if a customer’s circumstances have changed or there is unusual transaction activity, the checks must be completed again.
If a customer fails these checks, it’s unlikely that a company or financial institution will work with them because of the risk they pose.
What are the three areas of KYC?
There are three components of KYC that you need to be aware of:
- Customer Identification Program (CIP) is the stage where you collect and verify the customer’s ID and official documents. If the customer is a business, you need to obtain this for the Ultimate Beneficial Owner.
- Customer Due Diligence (CDD) uses third-party information about the customer to verify that they can be trusted. This can be done by seeking confirmation from banks or other financial institutions. For more information about Customer Due Diligence, check out our previous blog post: Why Is It Important To Carry Out Customer Due Diligence?
- Ongoing monitoring identifies suspicious changes in activity that may alter the customer’s risk profile.
What’s the difference between KYC and AML?
There can be confusion about the difference between KYC (Know Your Customer) and AML (Anti-Money Laundering).
Simply put, AML is the overarching framework of legislation and regulation that must be followed to prevent money laundering. In contrast, KYC is a risk-based approach that verifies a customer’s identity.
However, you may find that many use the terms interchangeably.
How can MLVerify Help with your KYC checks?
MLVerify enables businesses to perform KYC checks on clients, assign them a risk score, and schedule periodic reviews of them.
We allow you to assign custom KYC checks to your clients, so you can gather the information you need when you need it.
Once you have the information you need from your client, we also provide fully integrated Electronic ID checks that verify the individual using several external data points.
We can also help you manage your client’s risk scores by applying rules that automatically score them based on the criteria you set.
If it sounds like MLVerify can simplify your AML compliance, get started for free today.