Financial Crime World

Know Your Customer (KYC) Procedures for Banks and Financial Institutions

Origin of KYC

The Know Your Customer (KYC) procedures originated from the 2001 Title III of the Patriot Act to prevent terrorist activities. This legislation mandated financial institutions to implement policies that verify customer identities and monitor their transactions.

Elements of a Strong KYC Policy

A robust KYC policy consists of several key elements:

  • Customer Policy: A set of rules and guidelines for customers, outlining the requirements and expectations for account management.
  • Customer Identification Procedures:
    • Data collection: gathering customer information through various channels
    • Identification: verifying customer identities using documents and other means
    • Verification: confirming customer details to prevent fraud
    • Politically exposed person/sanctions lists check: screening customers against PEPs and sanctions lists
  • Risk assessment and management: Conducting due diligence on customers to assess potential risks and implementing measures to mitigate them.
  • Ongoing monitoring and record-keeping: Regularly reviewing customer accounts and maintaining accurate records.

ID Verification

ID verification involves using advanced document readers and software to confirm a customer’s identity. This process ensures that financial institutions comply with KYC regulations and prevent money laundering.

Digital ID Verification Process

The digital ID verification process streamlines the customer onboarding experience, enabling:

  • Automated capture of customer demographic data: Integrating customer information into enterprise systems like CRM.
  • Ongoing due diligence and risk assessment: Conducting further checks to ensure customers meet regulatory requirements.
  • PEPs (Politically Exposed Persons) review: Screening customers against PEPs and sanctions lists.

KYC Verification with Innovative Approaches

US agencies have encouraged banks to experiment with artificial intelligence and digital identity technologies to enhance KYC procedures. These innovative approaches can improve the efficiency and effectiveness of customer verification processes.

Biometrics in KYC

Biometric data, such as facial recognition or fingerprint analysis, can be used to enhance the security of the ID verification process. However, its use may be subject to local or regional regulations, such as GDPR in the EU or CCPA in California.

How Gemalto Can Help

Gemalto provides a solution that helps private customers comply with new rules regarding CDD (Customer Due Diligence) and KYC obligations. Their ID Verification solution offers:

  • Automated digital capture of customer information: Instant auto-fill in enterprise data systems.
  • Multichannel identity document verification: Adaptable security levels to meet regulatory requirements.
  • Biometric technologies for customer authentication: Enhancing the security of the ID verification process.
  • Customer risk assessment through PEPs, sanctions or watchlists review: Identifying potential risks and mitigating them.