User and client relationships are very important for any business entity. Yes, many business entities don’t understand some basics, or sometimes they just cannot find out a clue for a good relationship. So, it is important to know your customers if you want your business to boom. KYC compliance should be a core value for any business entity. Just like we said, most business owners or companies don’t understand how the thing works. Need not worry as we give you a complete guide on know your customer’s checks. We are trying to make the topic as easy as we can, so scroll below this context.

What is KYC?

KYC acronym means to know your customer. To simply put it, KYC is a way to identify a client or gather information about them. Day by day, extensive renovation of technology is making our life easier. However, for many businesses, the online procedure is the best way to commit business. Hence there is a possibility for online fraud. 

So, it is important to identify these frauds or tackle them by ensuring legal and global financial imperatives. KYC is a short-term process. Day by day, every financial institution is trying to understand KYC and implement legal imperatives. Thus, they can go on with their business and build a good customer and owner relationship. 

KYC generally wants legal documents from the customers. Maybe it’s just asking for identity information or other documents. This way, they can tackle any fraud or face difficulties head-on.

How Does KYC Work? 

Already you have known about KYC in short. It means getting proper identification from the clients. Thanks to the internet, business is widespread around the world. Yes, it’s easy to do business, but now it is risky for the owners. Clients may be involved in various crimes or terrorism. Also, there is a possibility of the client being a fraud. As a business owner, you need to be completely aware of the client. But you don’t know him personally and what can you do about it? That’s when you need to check out legal documents.

For KYC, the process is to identify the client. Determine whether he is the person claiming to be or not. After identifying your customer, you can provide him the proper service and products. There are a lot of different methods for identifying your clients. We cannot mention every method in this content that’s for sure But we can talk about some of them in brief. Here are some processes in KYC to determine your clients’ identity. We will make it as easy as it can get.

Customer Identity Program (CIP)

Identity theft is a common problem financial institutions are facing. So, they need to find a proper way to ensure their clients’ identity. Maybe this is a great risk and more than that – this is the legal law. CIP is a great way to prevent illegal activities. Well, in this way, they can accurately know about the identity of their customers. Most of the time, identity theft is possible for individual accounts. 

So, when anyone is creating a transaction account, they need to fulfill some information. Basically, it means identifying individuals’ transaction accounts. For these accounts, the information is not that secretive. It’s just the name, address, or identity information. 

However, when you are trying to identify the client’s identity or determine he is a fraud or not – CIP is an effective process. The owner can look for information from the bank or his transaction account. For the banks part, they can take a few times and give you suitable assurance. Well, there are risk-taking factors from the owner too. But CIP can help you from money laundering. Not just that, you can know how much risk the client poses.

Customer Due Diligence (CDD)

The first thing for any business is to build up trust between your customers. And in order to do so, you need to determine if they are trustworthy or not. CDD is a great way to prevent any illegal activity or threat from your clients. This process also helps the owner to manage their risks to a minimum. For this process, there are some practical ways. We are not going to talk about complicated things – let us show you some practical examples. 

Every client will provide a location or address. They can do it by showing you documents and other information. And based on the documents, the owner can locate the address and confirm the identity. Also, there is more to it as you need to manage the risk factors. 

First, the financial institution or business entity needs to document their client. Based on the primary information and other factors, the owner should check out the background of the provided information. After that, they need to list the client based on their risk factors. What type of customer they will be, what sort of risk are you facing doing business with them is the mandatory question here. 

For CDD checking out the financial account, a statement is very important. How often clients are doing their transactions is another important factor here. 

Ongoing Monitoring

Everybody knows that you cannot relax after monitoring your customers once. Business owners need to keep monitoring their clients to get all the important information about their clients. This way, they can manage their risk factors by a margin.So, what is ongoing monitoring and how does the owner perform this process.  Keeping a good eye on their transactions, account status is important to get a good grip on their financial status. Ensuring the customer account is up-to-date or not is important too.

Why KYC is So Important?

As of now, you know KYC is a manual process. As a business entity, the industry needs to protect the stakeholders. Some businesses involve a lot of money. So, ensuring all the data is very important to eliminate major risks. Business is always a risk and as an owner, you need to manage the risk. KYC is a manual process for building trust between the owner and the client. 

When the business entity can go with the “know your customer compliances”, they can often reduce the risk involved in their business. Also, the owner can know where the client is earning. By determining that, they can easily understand if there is any illegal activity involved or not. Whether it’s banking, investment, or just local business, knowing about their clients is important. When the client is trustworthy, the service provider can easily provide the right service.

Difference Between KYC and AML

AML is a broad area in finance or banking. On the other hand, KYC is just a part of that wider process. Those who don’t know about AML can say that this is the “Anti Money Laundering” process. However, AML and KYC are connected in many ways. Yes, we say that one is a part of the broader one. As for digital exchanges across the world, owners are going with the AML process. But this is where KYC can play a huge role.

What is the Meaning of KYC in Banking?

Banking is a very complicated thing around the world. Also, banking involves a lot of risks along the way.  Any bank or financial entity faces a lot of risks involving illegal activities. They need to ensure that the client is not in hand with commercial terrorism. So, the government around the world came up with many standards and legal systems to make KYC safer. KYC is the same in other industries such as investment, business, and other industries.

KYC in Corporate Sectors

Just for the banking system, the requirement for KYC and KYC for the individual is different. For any individual accounts, the owner needs to identify CDD, CPI, and ongoing monitoring. So, when you are a business individual, the owner needs to take some additional steps. Otherwise, the risk factor, identity theft is a problem. Transaction volume, amounts, and some other risk factors.  

However, the corporate sector is a broad place on its own. So, identifying gets more and more problematic for the owner. However, there are some KYC requirements and now we are going to talk about them in brief. So, what we mean is, for any business individual or corporate sectors – it is really important to understand the company and its record. And for digital transactions, it is important to manage the risk factors before doing business.

For corporate sectors, a company is involved in the business. So, collecting accurate company records is a must. What do these records include? For instance checking the company’s name, status, key management personal, employer’s individual ID, etc. Also, gathering information depending on jurisdictions is important. Fraud prevention standards can be another way to understand company vitals.

Performing KYC Checks on Individuals

Most of the individuals are known as a UBO, and business entity needs to perform AML or KYC checks. Nowadays, financial entities are facing a lot of fraud issues. So, they are always trying to deliver cost-effective compliance. Also, they need to ensure the process is not a huge burden for the customer. KYC is there to ensure safety and trust in the business. Customers are seeking service or product from the business entity. KYC is there for making it simple and easy. Without KYC, earlier it was a burden for many clients. And as there was no legal and easy process, individual checking was tough and risky.

Any compliance individual has no other option but to maintain certain requirements. However, there are some vital functions as fighting robbery, money laundering, terrorist financing, corruption, bribery, and any other financial misconduct. Well, this process is costly and takes a lot of time. We have talked about some of the processes earlier in this content and hope that you understand how they do the checking?

What is Electronic KYC Checking?

Thanks to digitalization, KYC is getting easier. Yes, we know there might be some occasions where you can’t use digitalization in the KYC process. Now the thing is really hard for several reasons. KYC always includes documents on a physical basis. When you go for the digital process, money laundering, and identity, robbery is very much possible. Technology is advancing and taking the benefit from it is good. Anyway, that will prevail shortly and we can see that by looking at the present criteria. There are many reasons why we think digitalization is good for KYC.

First of all, the KYC will be faster. As of now, the process takes a lot of time to determine the individual business entity and the client’s identity. Around 30% of checking’s take 2 or one month to determine and only 10% is completed in four to five months. When the process is digitalized, the process will get faster. 

On the other hand, KYC is a manual process. That is why they cannot identify the data accurately. KYC can check errors and fix other mistakes easily. That also lessens the cost of the process a lot. Not just that, compliance is very adaptable for many people. Come to think of it, eKYC will be a very effective way to identify and build trust between the owner and the customer.

Final Verdict

Knowing your customers is a very complicated thing than you can think of. When banking is involved with the process and confirming the client’s identity is very important. Anyway, the process is divided depending on the workplace and what type of business entity is working. There are a lot of risk factors in doing business and digital hacking is causing money laundering. Ensuring proper trust between the client and the owner is very important.  If you don’t understand the KYC process, now you understand. However, there are a lot of complicated things we couldn’t mention.