Since criminal activity is an ongoing challenge for the financial services sector, KYC stands for Know Your Customer was created to counter financial crimes.
This standard is a paramount element playing a crucial role in protecting all financial companies as it permits them to understand their customers and their transactions so that they are able to more accurately identify suspicious activities.
First introduced in the US in late the 1990s, the process of verifying a customer's identity covers ID card verification, document verification, and face verification. What is KYC verification? Why is carrying out KYC processes mandatory for entities?
The Process of KYC Verification
As the financial services entail all necessary measures to protect their clients' accounts from fraud and cyber threats, the KYC procedure is installed to meet regulatory compliance. It is an important procedure that makes the process safer and easier for both sides.
The process of verifying the identity of a customer includes face verification, ID card verification, biometric verification, and document verification. The first step is to collect the customers’ information by requiring them to fill out an online KYC registration on the services that they want to make financial transactions.
When the information is gathered, the users are required to confirm the information they have supplied on physical documents. In effect, these documents work as evidence proving the information entered by the applicants online is authentic. Once the documents have been uploaded and verified, the banking services can go through the verification procedure to ensure that the documents have not been corrupted.
Documents Required for KYC
Since obtaining relevant KYC documents from customers is an important process for the industries, here are the documents that the customers must provide to prove their identity. These documents will be digitally stored in a secured place and the experts will examine them to ensure that they are legal and correspond to their requirements.
Proof of identity
This document is mandatory in KYC's verification from which the individuals must supply their names and addresses. In the proof of identity, the applicants must provide two different documents; one document for proof of name and another for proof of address so a single document containing both name and address is not valid on KYC. These proof of identity documents include a Birth certificate, Passport with embedded photo obviously, and Driving licence.
Proof of Address
As for the Proof of Address document, it should be in the name of the applicants and has been supplied within three months. Actually, the customers must issue the documents such as the Utility bill, Bank statements, Tenancy agreements for the current year, and Local authority council tax bills.
Proof of Income
Another important document required in KYC is the proof of the individuals’ incomes. They are required to issue their salary statements, income tax returns, and bank statement.
Industries Where KYC is a Must Have
Here are some industries where KYC is a must-have:
Financial Services
The financial services sector is always targeted by financial criminals causing significant loss of revenues, loss of client confidence, and reputational damage. KYC in banking is extremely important because this industry may be exposed to a higher risk of financial fraud and money laundering. Therefore, financial services must perform verification procedures for their customers to reduce fraudulent activities.
This process doesn’t only apply to the new customers who open an account but the existing ones are also required to periodically update their KYC information. With the procedure, the financial industries will ensure that their customers won’t imply any financial crimes or criminal organisations. Moreover, KYC also matters to avoid their companies to have relationships with the individuals who are associated with illegal activities such as corruption, terrorism, and fraud in return for protecting their clients and their businesses.
Gambling
The gambling industry has increased at a rapid pace since the release of its online version in the late 1990s. People are drifting towards this activity as it allows them to have fun while making some winnings. With the introduction of mobile gambling, more and more people prefer playing on their mobile devices to quench their gambling desires. Nonetheless, the gambling industry is subject to financial crimes so the challenge to avoiding these illegal activities is to introduce the KYC system.
With the illegal funds and transactions that may occur on gambling websites, this relevant practice helps both the operators and their customers to avoid multiple issues related to financial practices. Obviously, many players still prefer no verification gambling sites and go to verified operators where they can stay anonymous, but the list of such sites shrinks and it is becoming harder to about the procedure. The KYC check in the online gambling sites takes 72 hours once the gamblers send the required documents. When the entities verify their clients using KYC processes, they can prevent money laundering, terrorist funding, and other illegal financial activities.
Investments and Crypto Trading
Cryptocurrency has become a phenomenon in the online payment industry since its appearance in 2009 with crypto markets booming in various flourishing sectors. As cryptocurrencies provide anonymous transactions, they are a potential refuge for criminals. Establishing robust KYC policies will minimise identity theft and fraud in crypto trading. Similar to other industries, KYC in cryptocurrency means identity verification processes applied by virtual asset service providers.
This practice of verifying an individual's identity is important as it permits the investigators to identify financial criminals by pseudonymously verifying users’ details and addresses. KYC systems on crypto exchanges require new users to provide their personal details such as legal names, ID cards, and up-to-date addresses. Other additional documents can be required depending on services and the exchange’s location.
Conclusion
If you have already used the services of the financial sector, you will have likely heard the phrase Know Your Customer. This practice is important in financial institutions and other sectors because it allows them to ensure that their customers are not implied in money-related crimes.
With KYC, they will reduce the risk of suspicious activities as well as protect their businesses from getting involved in financial crimes.
