It pays to learn more about your customers, so you know exactly who you are working with. This rule applies to all organizations, especially financial institutions, that face real threats like money laundering. One guaranteed method to lower risk is to screen customers through thorough identity verification and assessment. This is where the Know Your Customer (KYC) process comes in.
KYC boasts an array of advantages, one of which is establishing your customers’ identity. You get to understand their financial activities, mainly where their funds stem from and gauge the possibility of money laundering based on monitored activities. As a result, you don’t unwittingly become an accomplice to a federal crime while ensuring utmost institutional compliance.
KYC Process Best Practices
When carrying out a KYC process, the methods may vary per organization, with some more effective than others. To get the most out of the process, it should always follow the best practices.
Make sure to hit 100% full compliance
Leave no stone unturned when it comes to your KYC process compliance. Start with customer due diligence (CDD), which is integral to the entire process. The goal of CDD is to spare your business from letting a suspicious client into your financial system and flag a suspected account before a problem arises.
CDD encompasses collecting information from customers and relevant sources such as global sanction lists and analyzing them. This happens before onboarding. Active accounts go through the process to gauge the validity of transactions linked to them.
Have a robust customer identification program
The CDD process only works for clients who pose zero or minimal risk, but customers with high-risk profiles are best approached with enhanced due diligence (EDD). This process is more thorough than CDD.
In addition to the basic information required by CDD, you can also ask a client about where their funds come from, their detailed personal and professional background, and their negative media portrayals, if any. The information you gather from these inquiries will allow you to decide if a particular client is worth doing business with.
For sheer volume, automation is key
Audit requirements and compliance reporting prove challenging when dealing with large sums of money from diverse clients and sources. In this regard, you cannot rely on manual processes alone. You can integrate automated methods into your verification and authentication system through third-party or proprietary software.
Either way, your end goal is a scalable operation that can quickly respond to any changes in regulatory standards imposed by relevant institutions.
Constant cybersecurity infrastructure
When was the last time you strengthened your cybersecurity infrastructure? Remember that a system installed five years ago is far less reliable than new ones. Cybercriminals are clever enough to find ways to circumvent technologies that may be used to keep them at bay.
Up-to-date systems are crucial, so don’t neglect to give your cybersecurity landscape its much-needed regular touch-up. Improve your KYC process with new methods like cloud-based identity proofing.
Have a team of discerning people
Even with the most advanced technology, your KYC process is bound to fail if you don’t have people with foresight. Make sure your team is composed of trained individuals who know when to raise the red flag after reviewing data procured from the tools you use. They must also possess the acuity to discern which cases require escalation for a more expert review.
Clear-cut risk policy
Organizations will have different methods and protocols guiding their KYC process. But one thing the most effective of them will have in common is a clear-cut and fool-proof risk assessment policy. That’s where you analyze all the data to calculate the risk of exposure of a customer or institution to financial crime.
An expert evaluation determines what constitutes a high-risk profile and what case merits more stringent monitoring. This way, you won’t mistakenly assign a high-risk label to an otherwise safe client or vice versa.
Stop Money Laundering, Know Your Customer
Money laundering is a serious offense. If you’re at the helm of a financial institution that gets caught up in a money laundering case, expect a lot of complications. It would be detrimental to your brand, and you could lose the trust and respect of even your most loyal clients.
Plus, there are moral and ethical questions to contend with. Did your negligence make you a reprehensible accomplice to the crime even if you don’t have direct involvement? Does it make you answerable to the people affected by the scam, such as those victimized by drug and human trafficking, or the citizens of nations whose public funds have been stolen?
Thankfully, you can avoid trouble. Begin with an effective and efficient KYC process. Contact Q5id today and learn more about how to run an effective identity verification process for KYC.
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