Digital KYC – The Only Way Forward to Comply With AML/CFT Regulations 

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Every organization, including financial institutions, has integrated KYC, Know Your Customer, or KYC procedures to verify its customers. It is essential for banks and other financial organizations because of its assured security in customer onboarding. The primary objective of KYC procedures is to confirm the customer’s identity and ensure that the person is not linked to any criminal record. Since the fintech industry continues to boom rapidly, it is immensely significant for financial organizations, specifically banks and crypto organizations, to adopt digital KYC mechanisms. It is crucial for combating the non-traditional threats of the 21st century, such as cybercrimes, money laundering and terrorist financing.

Digital Onboarding KYC in Banks

Since banks have become the fundamental target of financial criminals to register illicit monetary transactions, they must switch to digital customer onboarding immediately. Your bank needs digital KYC solutions to guarantee protection from such individuals and ensure anti-money laundering and financial crime compliance (FCC). Digital KYC is an immensely potent method to verify customer identity by integrating digital technologies into your bank. The KYC customer onboarding process is conducted by carefully evaluating the identity proofs of customers. It ensures that the person possesses a legal identity and is not a part of any money laundering group, criminal network, or banned outfit.  

Why is Digital KYC Verification Essential?

Online KYC verification procedures are crucial in maintaining the credibility and integrity of financial organizations like banks. For instance, if a bank still resorts to outdated and traditional onboarding procedures instead of opting for digital KYC solutions, it can become vulnerable to money launderers, fraudsters and terror financiers. This would lead to AML/CFT compliance failures and impose hefty legal penalties. Consequently, the organization’s reputation, credibility and integrity are tarnished, resulting in financial losses. For example, USD 10.4 billion in global fines and penalties were levied on financial organizations in 2020 due to AML/KYC non-compliance and data privacy breaches. Adopting the digital KYC system can save your bank or any financial institute. To put it simply, digital KYC is exceptionally vital for:

  • Preventing identity thefts, document forgery, phishing, hacking and scamming
  • Eliminating the possibility of financial fraud
  • Mitigating money laundering
  • Averting terrorist financing
  • Allowing swift customer onboarding
  • Transparency of transactions
  • Vigilant surveillance of customers

What are the Global KYC Standards Followed by Financial Institutions?

Banks and other financial institutions worldwide have adopted similar know-your-customer compliance guidelines. The global KYC standards include the following:

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  1. Customer Acceptance Policy (CAP): This process is vital for banks to define the basis of their relationship with customers. If your bank does not have this policy, it can be exposed to grave compliance risks. 
  2. Customer Identification Procedure (CIP): This procedure plays the most significant role in customer onboarding and digital KYC. It is often the first step during digital KYC onboarding. This process includes document verification and identity authentication to ensure the legality of customers. It is the same for both types of customers, i.e., individuals or businesses. The required information includes ID number, name, date of birth and address. In the case of a business, banks collect government-issued papers and licenses.   
  3. Transaction Monitoring: Financial organizations must detect suspicious activities through ongoing transaction monitoring. It is significant for AML/CFT compliance as the banks must know the source of funds flowing through their institution. 
  4. Risk Management: Banks should establish a systematic process for implementing policies that comply with relevant regulations. Moreover, risk management is essential for identifying and mitigating risks. It enables your bank to implement customer due diligence and identify high-risk customers strictly.  

e-KYC Process for Efficient KYC Implementation

E-KYC is the abbreviation for electronic know-your-customer, otherwise known as digital KYC. The eKYC process aids in efficient KYC implementation as it regulates financial organizations to combat fraud, identity theft, money laundering, and terrorist financing. It is a paperless process, reducing the time, effort and cost of implementing KYC. Electronic or digital KYC uses character recognition technologies such as Optical Character Recognition (OCR) and Intelligent Character Recognition (ICR). This high-tech software identifies and extracts the contents from the document and proves to be crucial in document verification procedures.  

Video-based KYC Online Check: The Most Authentic Electronic KYC Procedure

Video-based KYC online check is a critical digital KYC tool that enables financial organizations like banks to verify their customers through a video call. It is a momentous innovation in the fintech industry because it aids in transparently implementing AML compliance. Furthermore, its significance can be understood from the figures provided by Facts and Factors. According to its report, the global video KYC market stood at USD 154 million in 2019, but due to its growing demand in the post-pandemic world, it is expected to reach USD 500 million by 2026.

Moreover, according to the projections cited by another report, the global video AML/CFT solution market is forecasted to rise considerably between 2023 and 2028. It is already growing at a steady pace. In 2022 the global market size accounted for 212.68 million, which is anticipated to rise rapidly to about USD 499.57 million by 2028. These numbers display the immense potential of digital KYC video-based solutions for the finance sector.

Summing Up

In summary, digital KYC ensures effective and transparent customer onboarding to filter out any chances of financial crime. Therefore, a digital KYC procedure is the only way for your financial institution to comply with AML/CFT regulations.

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