Understanding The Concept of AI-Based KYC Verification

What does Know Your Customer(KYC) Means?

Financial institutions have increasing hurdles in determining who their customers are and putting in place procedures to avoid financial crime. Financial institutions (including banks, credit unions, and Fortune 50 companies) are required to follow a series of increasingly complex KYC standards for customer identity verification. We’ll go through KYC standards in the United States in this article.

KYC stands for “Know Your Customer” or “Know Your Client” and refers to a set of procedures for validating a customer’s identity before or during dealings with banks and other financial organisations. Money laundering, terrorism financing, and other common fraud schemes can all be thwarted by following KYC solutions. By first confirming a customer’s identity and intents when they open an account, and then analysing their transaction habits.

What is Required For KYC Verification:

Customer identification programme (CIP), customer due diligence (CDD), and enhanced due diligence (EDD) are the three steps in the “Know Your Customer” concept (EDD).

Customer Identification Programme:

Firms must pull four pieces of identifying information on a client at a minimum, including the client’s name, date of birth, address, and identification number.

In their screening procedure, most companies go above and beyond. Many will ensure that their clients do not appear on government sanction lists, politically exposed person (PEP) lists, or known terrorism lists, and those who do will be subjected to additional due diligence.

Customer Due Diligence:

The process of classifying all of the information gathered throughout the Customer Identification Program is known as customer due diligence.

To verify that every behaviour is compatible with prior customer information, companies assess the type and beneficiaries of existing connections.

The purpose is to gather enough data to validate a customer’s identification and determine their riskiness. Because financial crime moves swiftly, companies keep a close eye on this data for anomalous increases in activity or modifications to sanction lists. The majority of clients offer little to no risk, but those who do are subjected to more scrutiny.

Enhanced Due Diligence:

If a customer is regarded as creating larger risks, companies go above and beyond to have a better understanding of their intentions. High-risk persons may have political ties or associations with certain individuals. A compliance red flag can be raised even by someone from a high-risk country.

Companies must demonstrate that they have a better understanding of the high-risk consumers identified by a basic customer due diligence approach in practice. Improved due diligence requires a source of wealth verification, detailed management reports, and relevant third-party research, among other things.

Customer Experience Regarding KYC:

Because KYC adds complexity to the onboarding process as consumers go through the requisite identity verification stages, emerging technologies for online identity verification are crucial. Long wait times are costly for banks and inconvenient for consumers who demand speedy responses. In fact, according to Signicat data, more than half of retail banking clients in Europe have given up trying to sign up for new financial services. What is the primary cause? It simply took too long and was too difficult.

As a result, every company faces the problem of balancing KYC with the need for quick, effective onboarding processes that provide a favourable client experience.

How does the Know Your Customer (KYC) procedure work?

KYC is more than just an administrative procedure that takes place at the start of a customer’s journey. KYC verification necessitates continual profiling of customers throughout their lives, a process called perpetual KYC.

Perpetual KYC’s goal is to detect (preferably in real-time) any unusual changes in transactional behaviour. Understanding the source of the change – and, more importantly, if it is potentially suspicious – is critical as part of the KYC verification process.

Conclusion:

Know Your Customer (KYC) is a set of norms and regulations used by investment and financial services firms to authenticate their clients’ identities and any associated risks in the customer relationship. KYC also guarantees that investment advisors have a thorough understanding of their client’s risk tolerance and financial situation.

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