Know Your Customer: Why is KYC Important?
Before entering into a relationship, it’s important to do your due diligence. You wouldn’t get married without getting to know your partner and you wouldn’t risk hiring someone without an interview. So why take the risk of entering into a bad relationship when onboarding new clients or customers?
Know Your Customer (KYC) Policy
Know Your Customer or KYC processes help organisations to identify and verify customers. By carrying out customer due diligence and identity verification, the risk of unwittingly working with people or organisations involved in illegal activity or money laundering are minimised. This is particularly important for banks, financial organisations, gaming operators and other organisations that are frequently targeted by fraudsters.
As well as preventing misuse by criminals, KYC helps organisations to understand and manage potential risks during the customer onboarding process. In turn, this can help organisations to appear more trustworthy to potential new customers.
Objectives
It’s estimated that between 2 – 5 per cent of the world’s Gross Domestic Product (GDP) is laundered every year, which is equal to between £616 billion and £1.47 trillion. For that reason, many Anti-Money Laundering (AML) laws, regulations and processes require the use of Know Your Customer.
KYC checks remove the risk of onboarding customers involved with money laundering, fraud or other illegal activities like financing terrorism. This is very important when onboarding a politically exposed person, such as someone working in public office, who could be a target for bribery or corruption.
It’s important to get your approach to KYC right. If you don’t, you could risk being fined or potentially facing criminal prosecution. There’s also reputational damage to consider. As a customer, would you want to do business with an organization that has been associated with illegal activity?
At a minimum, KYC checks should be carried out when onboarding a new customer, but it is best practice to repeat these checks from time to time, to make sure everything is as it should be. By monitoring customer accounts in this way, suspicious behavior’s can be more flagged more quickly.
Even if you’re not legally obligated to carry out KYC checks, knowing more about your customers can help you manage risk and keep out unwanted customers. Demonstrating KYC compliance also helps to build trust by showing that you’re going above and beyond what’s expected of you.
KYC regulations are ever-expanding. So, if you believe your market is likely to become regulated in the future, getting a head start on it now could save your business a painful retrofitting process.
To ensure KYC compliance, you’ll need to put adequate internal controls and monitoring systems in place to flag money laundering threats as they happen. You’ll also need to keep records of customer due diligence activity for at least five years after a transaction takes places or the relationship ends.
It is best practice to document your KYC and AML policy, controls and procedures for preventing money laundering, with details of the key employees who are responsible for managing this.
With so many regulations and so much at risk, it can be difficult to understand which ones apply to you when developing a customer onboarding process. At the same time, it can also be challenging to get the balance right between impressing new customers with a seamless onboarding experience, while at the same time giving them confidence that their money and assets will be safe and secure.
The challenge many organizations face is that KYC processes often increase the time it takes to onboard new customers and this can negatively impact their experience. Often, staff will be expected to manually input information into a system or manually validate it every time. Not only is this immensely time-consuming, but it is also prone to human errors.
Automation can help.Automating KYC and AML checks can reduce your reliance on paper-based checks, while also removing potential risks and staff costs. Organizations can automate key processes using robots that will reliably and automatically carry out data-driven tasks.
KYC Procedures
Our CIP involves collecting and verifying information that confirms the identity of our customers. This includes:
Individuals:
– Full Name
– Date of Birth
– Nationality
– Residential Address
– Government-issued Identification (e.g., passport, national ID card, driver’s license)
Businesses:
– Business Name
– Registration Number
– Country of Incorporation
– Business Address
– Documents of Incorporation (e.g., articles of incorporation, business license)
– Details of Directors and Ultimate Beneficial Owners
We implement varying levels of due diligence based on the risk profile of the customer.
Applied to all customers, involving identity verification and basic background checks.
We prioritize your security and compliance through our comprehensive Enhance Due Diligence (EDD) process. Our meticulous KYC protocols ensure that all merchants meet the highest standards of verification, protecting your business from potential risks and fraudulent activities. Trust Leoro to provide a secure and compliant environment for your transactions.
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