How Does KYC (Know Your Customer) Actually Work? Understanding The Process
KYC (Know Your Customer) regulations are very important in the world of finance. KYC, along with AML (Anti Money Laundering) regulations can help protect financial institutions from fraud, and from processing illegally-obtained funds — such as money embezzled by a Politically-Exposed Person (PEP).
But how does KYC work? What’s required, and what is the actual process like? In this article, the team at Verifer will discuss KYC and help you understand how this complex regulation functions in day-to-day life.
KYC For Individuals
For individuals, KYC information gathered by a bank or another financial institution usually must include all of the following:
- Identity — Full name, date and place of birth, nationality, address, and other information is almost always required, as are numbers like Social Security Numbers and other unique identifiers.
- Political status — Each individual is checked against a list of PEPs, to verify whether or not they themselves, or a relative has any politically prominent position.
- Links to illicit activity — Financial institutions may perform background checks, to see if the client is linked to any kind of financial crime, terrorism, or has sanctions against them from the government.
- Source of funds — If a cash deposit or transfer is being made, the bank or financial institution may inquire about the source of the funds, such as whether they’re from business income, a gift, an outside bank account, and so forth.
- Expected transaction volume — The larger a transaction it is, the more likely it may be suspicious. The bank must make sure that the transaction is legal — and may need to report it to a government agency for further investigation, in some cases.
While KYC may vary based on the institution, these are the primary components — identifying the person, if they have engaged in any illegal activity, and monitoring their funds and transactions to attempt to identify any further illicit activities, like money laundering.
The KYC Process — Identifying Suspicious Persons Or Individuals
The process of KYC is simple. During the “client onboarding” process, the client is responsible for providing all of the above information.
After this, the KYC process begins. Using a variety of databases, the institution conducting the KYC checks will look for matches with criminals, politicians, and other sanctioned persons. Matches will be checked for false positives.
Individuals who pass this screening may conduct their business as usual. Those who are flagged may need to be investigated further by authorities — and their accounts could be frozen in the meantime.
Then, throughout the duration of the client’s relationship with the bank, their accounts are monitored for unusual transactions and activity, to ensure that the client is continuing to conduct their activities legally.
Verifer — Effective, Affordable KYC
KYC is often a burden for companies looking to work in the financial space. But at Verifer, we’ve created a KYC and AML product that’s affordable and easy to use. To learn more about what we do and how to use our products, take a look at our website, or join our ICO.
We are also offering 1 month of Free KYC for all companies, read more here: https://verifer.io/kyc_1month_campaign .
Let’s discuss on any of our social media channels or telegram:
https://twitter.com/Verifer_io
