During the pandemic in the whole world, everything has changed. The Fintech sector includes this. Know Your Customer Compliance is already changing by time so fast. With COVID-19, this changement became faster.
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Understanding KYC
Know Your Customer or Know Your Client is a control procedure that financial institutions that offer financial services apply to exist and new customers to identify and avoid risks. KYC’s ultimate goal is to confirm with a high level of assurance that clients are what they say and that they will not possibly engage in criminal activities. KYC (Know Your Customer) check plays a crucial role in eliminating the risks associated with money laundering, terrorist financing, corruption, fraud, bribery, and other illegal financial activities. The control processes implemented in Know Your Customer ensure that the business has the necessary information about the customer to open an account and ensure that its risk level is determined. KYC laws were enacted in 2001 as part of the Patriot Act, passed after September 11, to deter terrorist behavior. Heading 3 of the Patriotic law requires financial institutions to fulfill two conditions to comply with KYC’s stricter. These are the “Customer Identification Program” (CIP) and “Customer Due Diligence” (CDD).
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A component of KYC compliance is the creation of a Customer Identification Program (CIP) as part of the initial engagement process to “establish a reasonable belief that every customer (business) knows their true identity.” In other words, a financial institution must verify the identity of each individual or business customer wishing to open an account. To comply with the CIP, each bank asks its customers for identification information. However, every bank needs to verify its customers’ identity and make sure that a person or business is genuine.
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CDD is a more detailed process. One of the cornerstones of a strong KYC compliance program is to conduct comprehensive customer due diligence (CDD) for all customers. Banks aim to detect abnormal or suspicious behavior of their customers. As a result, a risk assessment is assigned to the client to determine how much and how often the account will be monitored. Banks may ask for much more information from the client, which can include the source of funds, the purpose of the account, profession, financial statements, banking references, description of business activities, and others. There is no standard procedure.
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Why Is KYC Important?
By understanding their customers’ transaction patterns, banks can detect suspicious activities. Financial crimes such as money laundering and terrorist financing mostly occur in anonymous accounts.
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Regulations are getting stricter as financial crimes are on the rise. As a result, financial institutions need to make more effort to comply with them and strictly follow regulations and make regulations. If they do not comply with these regulations, they have to pay severe fines. If you want to learn more about fines, you can read our “Anti-Money Laundering Fines in 2020” article.
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New Normal for KYC Compliance
Compliance has long been a manual process. As a result of the research conducted by Know Your Customer in 2019, 37% of compliance experts perform their transactions completely manually or mostly manually. With the COVID-19 pandemic, everyone’s closing home and making transactions online have partially damaged this manual. Following the official recommendations to promote digital recruiting solutions released during the Financial Action Task Force (FATF) outbreak in April 2020, the Hong Kong regulator reiterated the importance of remote client engagement and simplified due diligence for financial institutions. Also, a report on “Money Laundering and Terrorist Financing Risks and Policy Responses on COVID-19,” published by the Financial Action Task Force (FATF) in May 2020, highlighted that several national regulators are beginning to encourage the use of those responsible.
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Despite the road covered in the last year, KYC compliance services still have some problems with digitalization. Examples include the; reluctance of compliance teams to replace established manual processes with new and digital solutions and IT departments’ reluctance to adopt software such as cloud computing solutions to facilitate remote and flexible work.
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We should not forget that besides the difficulty of these problems, the risk of doing nothing is greater. During the pandemic, financial institutions that fail to implement digital KYC and remote recruitment processes risk completely disrupting new customer acquisitions. However, with the development of technology and making people’s lives easier, the technology customers expect from the institutions they serve has also changed. Financial institutions should digitize and accelerate KYC compliance processes to not lose their customers and gain new customers.
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New Technology in AML
Control Frequently changes in regulations cause traditional AML controls to lose their functionality. Traditional AML controls are unsafe today and pose risks for businesses. Sanction Scanner provides solutions to AML control problems of companies such as excessive workload and false positives. With Sanction Scanner, you can automate your AML control process and reduce your workload. Companies can choose which country’s or regulators’ data they want to use in AML controls by creating custom search options.
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published on Sanction Scanner
