Back in 1995, when technologies started to show up keeping in mind future needs and past events. This occurrence triggered the demand for KYC regulations by financial institutions. Banks were proclaiming that it is impossible to observe security regulations without Know Your Customer. During the 80s and 90s, a progression of banking outrages would make ready for the more prominent examination of the banks and their clients.
In 2001, KYC was introduced as a part of the patriot act. This was passed after 9/11 to provide various means to demoralize the behavior of terrorists.
What are KYC and CKYC?
KYC stands for Know Your Customer. It is a mandatory process acquired by banks for the purpose of user authentication and verification. Businesses nowadays are integrating themselves with such technologies which involve AI-powered fast track customer onboarding with AML and KYC compliance. Businesses follow KYC to identify whether the user is authentic or not. Getting the service of KYC can solve the issue of fraud. The cost of customer onboarding is rising as there was a 16% increase in 2017 as compared to 2016 and a 16% increase in 2018 as compared to 2019.
CKYC stands for Central Know Your Customer. It is a measure taken by the government to bring the KYC process of all the financial institutions under a single law. It is a centralized archive of KYC records of customers, making use of numerous services of financial sectors. By making all relevant information about potential customers available in one place, the Central Know Your Customer Registry helps financial sectors skip the tedious process of onboarding customers. It was created with the purpose of reducing the lengthy process of producing KYC documents, and getting those documents verified every time the customer creates a new association with the financial sector.
In CKYC, a 14 digit number is linked with the ID proof, and customer data is safely secured in digital format. Customers are asked to fill a KYC form when they start to invest with the fund house. Relevant documents are also attached to the submitted KYC form. Then for the purpose of verification, documents are sent to CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest ), a 14 digit CKYC number is assigned to the client. All of the relevant financial institutions are notified when there are changes in KYC features.
KYC Measures Against Financial Crimes
KYC refers to the following steps taken by financial sectors:
- Establishment of customer identity
- Understanding and tracking the activity of customers.
- Identification of money laundering risk occurrences.
Customer Identification Program
About 16.7 million of the customers of the United States are getting affected because of identity theft. In 2017, 16.8 billion dollars are stolen because of identity fraud. It’s a law for obliged entities such as banks and tax sectors. According to the customer identification program (CIP), identity verification has to be done of a person who is conducting a financial transaction.
Customer Due Diligence
It is mandatory for financial sectors to make sure that customer is trustworthy. Customer due diligence (CDD) is an essential element for risk management and prevention against fraud, PEPs. There are 3 different levels of due diligence which are as follow:
- Simplified due diligence
- Basic Customer due diligence
- Enhanced due diligence
Checking customers once in a while is not enough. It is necessary for fraud prevention to continuously monitor the customer on an on-going basis. Factors for on-going monitoring may include
- Doubts in activities
- Unusual cross-border activities
- Including people on sanction lists, PEPs
- Adverse media mentions
AML KYC Compliance and Monitoring Solutions
For financial institutions specifically, KYC compliance has a huge effect on how they empower clients to open records and perform transactions on their preferred gadget. Clients need online banks however banks must battle with AML and KYC compliance against fraud and financial crimes. To meet the needs of KYC obligations, banks should leverage biometric authentication and AML KYC compliance.
Online KYC verification is quite fast and efficient as opposed to traditional KYC. Therefore, several organizations have begun to incorporate it. Also, due to coronavirus, physical interactions have become limited. This will only maximize its usage and importance in the near future. Often it can be complicated, but it is of undeniable value. It helps businesses in being compliant with different regulations. Moreover, by implementing it, companies can become protected against online criminal activities.