KYC (know your customer) guide 2023

Reliable KYC practices are crucial to every business that handles legal commitments. Besides mitigating legal risks (such as identity theft and fraud), KYC also provides a sustainable legal base by tracking the validity status of submitted documents and tracking suspicious transactions. Even so, complying and keeping up with KYC requirements can be challenging.
What are they and what do they entail?

What is KYC?

Know Your Customer (KYC) is the process of identifying and verifying customers. Therein identification means gathering their personal data, and verification entails matching that data to information provided on that person’s ID.

To identify a customer, businesses usually need to collect the following data:

  1. Name and surname;
  2. Date of birth;
  3. Address
  4. Nationality
  5. Personal identifier etc.

To validate and verify this information, service providers may take a document-based verification route. In that case, they will request and check the customer’s government issued identity document and proof of address.

In line with Anti-Money Laundering/ Counter terrorist financing (AML/CTF) requirements , businesses must also ensure that customers are trusted individuals. In other words, service providers must evaluate customer risk, making sure they aren’t involved in organized crime or under applicable sanctions. That involves сhecking global sanctions lists, watchlists, blocklists, and adverse media.

How do you perform identity verification?

 

What is AML/CTF?

It refers to a network of international standards, laws, regulations, procedures and acitivities made to prevent, detect and punish illegal funds entering the financial system to fund terrorist individuals, organisations and/or activities.

  • Anti Money Laundering (AML) efforts seek to make it harder to hide profits from crime.
  • Counter Terrorist Financing (CTF) seek to prevent the financing of terrorist acts, terrorists, and terrorist organisations.
  • Criminals use money laundering to fake a legitimate origin of illicit funds.
  • AML/CTF regulations require obliged entities to implement Customer Due Diligence (CDD) measures in their customer management processes

How does ZealiD KYC process work? 

 

Why is KYC important?

It helps to detect fraud and prevent financial crimes, such as money laundering.

Stolen personal data can be used to register on platforms, ranging from payment apps to dating sites. Once this step is complete, individuals may perform illicit transactions or scam honest users on behalf of another person. To mitigate those risks, businesses verify their customers in alignment with KYC.

AML-obligated companies that don’t meet KYC requirements may face regulatory enforcement measures and reputational losses. 

Even non-AML-obligated companies can face business risks (multi-accounting, illegal chargebacks, etc.) if they don’t voluntarily implement KYC procedures.

 

 

Who needs to follow KYC measures?

Since KYC falls within AML/CTF requirements, every AML-obligated business must perform KYC procedures. Some good examples are financial institutions, insurance entities, real estate brokers, car dealers, accountants, crypto businesses, and gambling platforms that offer their services on a constant and unlimited basis. But KYC can also be useful for businesses that aren’t subject to AML regulations, such as marketplaces and car sharing platforms. It can help them manage customer risks and filter out risky suppliers and platforms.

 

Which KYC data can be delivered and how is it exchanged? 

Learn more about Customer identification and verification methods

 

Does data collected during KYC go in line with the GDPR?

 

KYC checks

The KYC procedure is meant to confirm that a customer is who they say they are. Here’s an example of proper remote KYC steps (in line with European ETSI standards for eIDAS), in order:

  1. Identification—requesting that the customer provides their personal data (name, date of birth, address etc.).
  2. Liveness check—verifying that the customer is a real and living person. This can be done through facial biometrics authentication.
  3. Verification—checking that the customer is who they say they are. It’s where the customer’s documents are confirmed (or denied) as authentic and valid. This step may include AML screening to check whether the customer is absent in adverse media, sanctions lists, Politically Exposed Person lists, etc.
  4. Risk scoring—determining the risk category of a customer based on the results of steps 1-3. Depending on the estimated risk level, businesses adjust their approach to the customer’s verification. In other words, a higher risk score will lead to additional checks.

However, KYC checks don’t end with the onboarding stage. Under AML regulations, businesses must continuously monitor their customers’ profiles and transactions. That includes checking document validity and detecting suspicious transactions.

 

How secure is KYC data exchange between two backends?

 

How to choose a KYC provider?

Different providers offer different KYC services. Some are fully automated, some include manual checks, liveness checks etc. The best advice is to choose one solution that covers all KYC needs instead of using a combination of different solutions.

Here’s the core criteria for choosing a KYC provider:

  • Compliance

The solution must comply with the regulatory requirements of the business’s jurisdiction(s).

  • Fraud prevention

Providers should offer strong fraud protection, reliably identifying forgeries, spoofing, and other malicious activity.

  • Coverage and language support

A provider should support document types from different countries and offer a selection of prominent interface languages

  • Speed

The solution should have short processing times and high verification speed, saving users’ time and providing quick access to services

 

Mistakes to avoid in an online identity verification

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