Power of KYC
What is KYC
Know your customer, or KYC, refers to processes for understanding and assessing customer identity and related evidence. The required checks depend on the institution, activity and applicable program; KYC reduces some risks but does not guarantee fraud prevention.
Unsurprisingly, regulators require financial service companies to adhere to certain KYC regulations to ensure adequate security. Companies must gather and verify information about a customer's identity in the onboarding process, such as name, birth date, address, and identification number. From here, companies then need to check for suspicious activity or sources of funds in the customers' financial accounts.
Additionally, these records must be continuously updated to ensure that companies do not have customers engaging in fraudulent or suspicious activity. If any issues arise with an existing customer, companies must report these findings and take action to prevent fraudulent activity. All of this information allows financial services companies to craft an accurate risk profile of clients.
KYC Challenges
There are many challenges financial companies face when trying to adhere to KYC regulations. These challenges are reflected in the sheer number of fines faced by companies that are unable to accomplish adequate KYC protocols. Billions of dollars in penalties occur every year as companies struggle to meet minimum KYC requirements.
Companies and financial institutions are put on the back foot as they must react to potential or current customers. This is due to the fact companies need to first collect data, analyze it, and then act. Such a process makes it very difficult for companies to be proactive when it comes to KYC regulations.
Additionally, despite the purpose of KYC being the prevention of money laundering, fraudsters, and criminal actors are able to accomplish money laundering. With hundreds of billions laundered annually, it is evident that better solutions are needed to prevent money laundering.
Further complicating all of this is the time and effort required by companies to properly complete KYC. It takes a significant amount of time and resources for companies to verify customer information and remain compliant with all the regulations, which can vary between jurisdictions. Unsurprisingly, many companies, especially smaller ones, need help implementing KYC and struggle with higher degrees of human errors and fines.
AI and KYC
AI has incredible potential to transform the entire KYC process. With AI and machine learning, financial service companies can conduct data analysis in real-time. This allows companies to check a variety of data sources and catch fraudulent or risky activity as early as possible, making it far easier to prevent fraud and avoid costly data breaches and fines.
Another useful feature of AI is false positive reduction, which allows companies to save even more time by chasing down false alerts. KYC regulations are constantly being updated and can be very different depending on jurisdiction. But with AI, companies can have their KYC automatically updated to new regulations and adapt to specific local laws.
Companies can also dramatically reduce the risk of costly human error. The increased speed and efficiency allow financial services companies to provide a smoother customer experience. Additionally, with AI, companies can easily turn to third-party companies to provide their KYC system. This allows financial service companies to focus on their service rather than the nuts and bolts of KYC.
Underwriting and KYC
Underwriting and KYC are challenging to separate. KYC plays an invaluable role in allowing underwriters to assess the risk of potential customers properly. KYC enables underwriters to verify the identity of potential customers and understand what the customer does for business.
Underwriters should follow their program’s evidence requirements and resolve identity discrepancies before a decision where required. Keep the evidence and the final judgment distinct; an automated result does not establish that every identity or risk question has been answered.
Evaluate identity evidence sources
Ekata, TransUnion, IDology and LexisNexis appeared in the historical article. They should not be treated as current Under partners or universally interchangeable identity tools. Compare the precise product, data coverage, permitted use and result meaning in current primary documentation.
Useful provider references include TransUnion’s identity-verification material and IDology’s ExpectID material. These are informational references, not endorsements or proof that an entire KYC process is complete.
Keep the review and its evidence separate
Link source results to an applicant identifier and record how mismatches were resolved. Identity evidence, authentication and business approval answer different questions. Follow the institution’s actual program and applicable obligations, rather than a universal claim that one bundle prevents fraud or fines.
Under’s former application platform is discontinued. Consult FinCEN’s due diligence resources for their defined scope and current related guidance; this article does not invent requirements for every financial business.