Due to the highly regulated nature of the financial services industry, it is imperative for firms operating in this sector to strictly follow comprehensive Know Your Customer (KYC) protocols when welcoming new users. Similarly, when establishing relationships with new business clients, meeting the Know Your Business (KYB) requirements becomes crucial.
Having proper KYC and KYB processes and solutions in place is vital to fighting fraud and preventing financial crimes such as money laundering. But it is also difficult to conduct KYC checks in a digital environment where fraud and cyberattacks are so rampant. Financial institutions must be able to accurately verify the identity of all new customers while being able to detect and stop fraud.
KYC compliance is often a burden for organisations, requiring manual intervention and being rife with inefficient processes. Firms can ultimately waste a lot of money and countless internal resources with inefficient KYC processes.
That said, here are 5 main pillars financial services firms should follow when it comes to KYC to fight fraud and grow revenue:
Accuracy: Whatever processes or solutions you have in place must be accurate in validating all PII and verifying that whatever documents are submitted are legitimate and not faked with a high degree of certainty.
Compliance: The KYC process should also ensure all applicable regulatory requirements, such as AML regulations, consumer data privacy laws, and others are being met.
Speed: Firms should have processes in place to quickly authenticate the customer’s identity, complete the verification process, and provide a clear result.
User experience: Likewise, you need to offer a seamless and user-friendly experience for customers, who may become frustrated and abandon the process if faced with too many onerous steps to complete. It should be accessible and easy to use, regardless of the device or platform.
Security: Finally, the solution should ensure the security of customer data, with robust security measures in place, such as encryption and multi-factor authentication, to protect against data breaches and unauthorised access.
KYC is not merely a compliance function, but a business driver as well. Having robust KYC protocols in place helps to onboard more customers quicker and keep them safe. Striking the right balance between safety and user experience when it comes to KYC means you will have higher user satisfaction and drive revenues.
Luckily, any business can create optimal KYC processes. The use of the latest technologies combined with continuously improved AI algorithms and ML models makes it easier than ever before to validate identities, manage new and old users, enhance risk-decisioning, and ensure compliance with changing regulations at lower costs.
When it comes to KYB, a common issue that many organisations face is that too many lump KYB in with Know Your Customer (KYC) processes. KYB compliance should be its own discipline with its own processes to ensure optimal outcomes.
For the optimal KYB experience, financial services firms need to combine the right technology with reliable data sources. This can include implementing technology that can automatically extract data from documents and pre-fill required forms with that information, which not only increases operational efficiency but reduces the manual input required by the user. That information should then be automatically checked against the government and other relevant proprietary and third-party databases to ensure the verification of every business stakeholder. This part is critical; you cannot just rely on self-reported data when it comes to KYB.
It’s also imperative to do thorough checks on each ultimate beneficial owner (UBO) related to the business. A UBO is any owner or stakeholder in a business. When onboarding a new business client, you must be able to accurately identify and verify all UBOs and conduct an end-to-end verification of every stakeholder. Ensure all information they provide matches public and private databases and generates risk scores for each individual. Fully vetting UBOs means you will be able to better prevent fraud and financial crime as well as meet all statutory requirements.
The use of the right technologies combined with proper processes makes it easier to validate identities, manage new and old users, enhance risk-decisioning, and ensure compliance with changing regulations quickly, at a lower cost, and without the need to rely heavily on your dev team.
This editorial was initially published in the Financial Crime and Fraud Report 2023 which dives into the captivating world of fraud management, digital onboarding, and financial crime in the financial services industry. You can download your free copy here.
Jason Howard is the CEO of Caf and a longtime identity industry executive. Prior to joining Caf, Jason served in the leadership team at Ethoca, the world’s first collaborative fraud prevention network, which was acquired by Mastercard, where he was responsible for driving global revenue growth and customer success.
Caf offers identity verification, onboarding, and authentication solutions to digital businesses to help secure their customers’ journey. Our comprehensive suite of identity solutions enables the verification of individuals and businesses and is designed to accommodate the unique requirements of both regulated and non-regulated businesses.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now