What is KYC & why is it so important?
Overview: What is KYC?
It’s a game of chase in the modern globalized fintech industry: While banks and financial institutions try to block loopholes in the system, money launderers and criminal entities look to exploit new loopholes.
And you have to give them credit; these fraudsters have come up with plenty of resourceful ways to trick the system and cover their tracks.
These individuals must always interact with legitimate financial institutions like banks and credit unions in order to clear their funds. On the other end of the spectrum, financial institutions have to rely on info they have gathered, and a system of various procedures, to counter such activities. This system of procedures aimed at identifying a customer is referred to as KYC.
KYC, which stands for “Know Your Customer,” is a compulsory legal and regulatory requirement for verifying customers by collecting reliable and independent information and documentation.
At the heart of the KYC process is the need to prevent theft, financing of terrorism, money laundering, and financial fraud.
Put differently, financial institutions need to follow the money trail: Where is the money coming from and where is it going to? KYC allows these institutions to better understand their customers and manage their risks prudently. It becomes easier to track down criminal elements when banks have accurate, reliable, and up-to-date KYC norms for all their customers.
Individuals involved in any of the following will most likely have to go through the KYC process:
- Opening a bank account
- Applying for a loan
- Changing beneficiaries or signatories to their accounts
- Investing in mutual funds
The KYC Process
Customers are typically asked to provide some information about themselves during the KYC process. This includes a name, date of birth, proof of address, and an upload/submission of a valid ID document such as a passport, social security card, or driver’s license.
Once this info is uploaded, it is screened against an international database of fraudulent individuals and criminals.
A risk score is then returned to the financial institution determining whether a potential customer should be permitted to do business with them. In some cases, further checks may be required to verify an individual; in others, a bank or institution may reject doing business with an individual outright.
Details of the customer, as well as the decision of the company, are securely stored. This provides optimal record keeping, should there be a need to investigate a customer or the company.
Problems with KYCs
Although KYCs may appear to be straightforward, the processes are never as simple as they seem.
For one, the traditional and standardized KYC processes currently being used are expensive: banks are reported to have spent as much as £40m yearly on KYC.
And that’s without mentioning how cumbersome they can be. On average, it takes about 2 months for new customers to go through onboarding processes.
Conclusion
There’s no question that KYC is a critical process for all financial institutions.
That said, current KYC processes are unnecessarily cumbersome. Customers have to repeat the same process for every new account they open.
There is also the question of privacy — who gets to see the information you share with your bank. This is where Blockchain tech comes in handy.
Clears is a new Ethereum based Blockchain tech that is offering scalable and personalized KYC processes. Clears will tackle existing challenges like time and cost of collating data, while simultaneously improving customer experience and privacy.
About Clears
Clears aims to be the standard KYC in the rapidly growing ICOs, Fintech and Cryptocurrency marketplaces, expanding to serve all industries that require identity checks and KYC processing. We are confident that users will specifically request that Clears processes their KYCs due to its convenience and enhanced security.
Learn more at http://clea.rs/
Join us now!
