Knowing your customers is a significant element of the fight against money laundering and financial crime. Preventive measures, such as KYC (Know Your Customer), are given a boost here in terms of identifying customers and preventing fraud.
The blog covers details on the process of KYC and its importance for various institutions.
What is KYC?
As simple as it gets, KYC stands for ‘Know Your Customer’ or ‘Know Your Client’.
In India, it is a legal need to verify the identity of your customer. You can use it to ascertain that your customers are who they claim to be. The client’s identity is verified during the account opening process, and this information is updated regularly.
KYC is used by financial institutions including banks and insurance companies to verify prospective customers’ names and addresses. Before processing transactions with their customers, financial institutions can focus on ensuring that their services aren’t being exploited for money laundering activities. Additionally, it aids in client understanding, allowing banks to provide better service to their clients.
Certain KYC regulations have been implemented by the Reserve Bank of India. The Prevention of Money Laundering Act (PMLA) was passed in 2002 to ensure that banks, FI’s and their intermediaries follow certain minimum KYC and Anti Money Laundering (AML) standards. According to the Financial Action Task Force’s (FATF) recommendations on combating terrorism financing, the guidelines are frequently revised.
Hence, a KYC process must include verification of a customer’s personal and professional information. Banks and other Financial institutions have the right to refuse to open an account or engage in business with a client who does not meet their minimal KYC standards.
Why is KYC important?
KYC processes have already been a reality for years. The leading companies in the sector already had KYC partners to help them acquire new customers. It has helped them in optimising their processes and lowering their acquisition costs.
In today’s world of increasing fraud, having a KYC partner might be the difference between a successful company and one headed to oblivion.
Although it affects every industry, KYC significantly affects the financial and banking sectors. Other connected industries, such as insurance, real estate, or commerce, rely on it as well.
- Banks can verify the integrity of their customers through KYC procedures.
- Identifying and preventing money laundering, terrorism financing, and other forms of unlawful corruption are all made possible because to the KYC implied client-onboarding processes.
- Investments and financial services’ officials can use this to make sure that they have enough information about their clients’ risk profiles and financial situations.
- It assists bankers and consultants in determining the beneficial owners of organisations, and in better understanding the client relationship.
- As part of the KYC process, customers’ accounts can be reviewed for suspicious or illegal activity. This makes it possible to keep track of customer-related dangers.
- KYC can also be used to authenticate non-individual consumers. Verification of the legal status of the company, its functioning address, the authorised signatories, and the beneficial owners is undertaken through the collection of identification data.
- It helps banks keep track of their customers’ accounts more effectively.
Wish to know more about KYC? Read our extensive blog on ‘All you need to know about KYC (Know Your Customer)‘
About IDfy
IDfy helps businesses engage with genuine people. We provide verification solutions that accurately identify entities to prevent fraud and reduce risk. Our solutions increase trust and safety while adding the least possible friction.
IDfy’s AI helps validate identity documents, verify their credentials, recognise faces and automate workflows. This allows our clients to streamline customer KYC and smoothen employee onboarding. It also helps reduce transaction risks among digital marketplaces.
