"Know Your Customer" is a customer due diligence process conducted by financial institutions prior to providing financial services. This process includes the identification of an individual, verification of documents, and an assessment of all the risks associated with a potential client.
"Know your customer" is a financial institution's obligation to the regulator to keep accurate records of all its customers. KYC is an instrument of international financial policy to combat money laundering and terrorist financing. This process also serves as a protective mechanism to reduce potential risks for the fintech company or bank itself, and failure to comply with these rules threatens the company with fines from the regulator and even up to the revocation of the license.
KYC includes the following procedures:
Identification of the person through identification documents and verification of the address.
Analysis of the financial condition of the client - confirmation of the source of income and mandatory control of operations.
Assessing all risks associated with client activities such as money laundering or terrorist financing.
Why is KYC important?
The purpose of this principle is to take care of a safe financial environment, prevent money laundering, and eliminate the risks of financing terrorism. Using Know Your Customer, banks and other financial institutions identify each customer - whether they are who they say they are and what their history is.
Key Benefits of KYC
Not all the benefits of KYC are obvious. This practice helps not only to resist fraud but also to improve the financial system as a whole:
Lenders can more easily assess their risks by knowing the identity and financial history of the client. KYC promotes more responsible lending and risk management.
KYC aims to combat identity theft and other types of financial fraud.
KYC acts as a preventive measure against money laundering.
KYC increases customer confidence in financial service providers, helps monitor the security and accountability of these services. The financial industry as a whole is directly affected by the reputation of services, which can also encourage investment.
How does the KYC process work?
Customers provide their details to banks and financial institutions to verify their identity and address. For an individual, the complete process includes verification of identity documents, biometric verification (such as a face), as well as verification of additional documents (such as utility bills as proof of address). If a company is opening a new account, then KYC includes checking legal documents (for example, identity cards or passport copies for shareholders, board members, employees, and a list of partners). After receiving all the documentation, the client is screened against various databases, blacklists, and public Internet sources.
Salviol's KYC solution allows you to create an effective system for evaluating banking customers for involvement in suspicious transactions, as well as establishing a channel for the exchange of this information within the system itself.