Traditional institutions which include financial institutions and insurance companies are in dire need of conducting due diligence processes. Know Your Customer (KYC) is the primary step towards customer verification. A backbone process to screen the onboarding traffic before giving space in a legitimate business. Even, regulatory authorities are active and focusing on the need for KYC as it helps to prevent the ruinous circumstances of money laundering and terrorist financing. KYC vets the businesses and entities to establish a healthy relationship with traditional institutions. It helps uncork corporate structures and shell companies that give birth to illicit funds flow.
Today, the emergence of technological advancements such as Artificial Intelligence (AI) and Machine Learning (ML), have open ways to automate the processing that was done manually. Technologies have provided opportunities to streamline the KYC/AML processes, which were cluttered and complex before. Therefore, now instead of paper verification, businesses have taken in place innovative solutions that conduct digital identity verification through various means. These methods include; real-time document verification, biometric authentication and id card verification. Now in mere seconds, financial institutions can verify the Ultimate Beneficial Owners (UBO), nature of the business, third-parties, and customers.
Challenges in KYC Processes
1. Inconsistent Data
One of the major challenges is the number of sources where company data is found but is not consistent. Different information at different platforms is confusing for the beneficial owners to tackle. For this, businesses should have access to government business registers. They carry authentic records and information related to businesses which can be helpful to verify businesses through corporate KYC/AML verification. All this information should be updated to verify against recent addition/removal of business standards or specifications.
2. Time-consuming Operations
Traditional banking verification mechanisms are time-consuming. Also, they are labor-intensive, require too much human power and time to undergo manual verification. The customers also have to wait in queues for their turn which becomes hefty. Time-consuming methods frustrate customers. Moreover, manual verification are prone to human error.
KYC API solutions are available that only need to be integrated with the system to perform automate KYC verification. A centralized verification tool will be responsible to handle the traffic simultaneously while providing a better user experience.
3. Compliance Cost
Compliance cost is higher but also mandatory to avoid hefty regulatory penalties. Local regulators have various and varying requirements to which the related regions are supposed to comply. It is estimated that in 2017, about $150 million is spent to comply with the KYC requirements of local regulators. This cost can be reduced with a better choice of KYC authentication procedures. Automated customer verification facilitates efficient processing with respect to both speed and reduced compliance costs. Hence, contributing to the elimination of bad actors while complying with the business standards defined by local regulators.
4. Automated AML Screening
To catch up with the growing regulatory demands, there is a need to take in place stringent actions. Customer Due Diligence installation is important to combat possible frauds. Also, money laundering activities should be monitored within an organization. This primary step is to make sure that any onboarding entity has not been previously part of any criminal activity. Automated verification against sanctions lists provided by law enforcement agencies should be done next. Continuous transaction monitoring and AML screening should be done to monitor suspicious entities and transactions i.e. above the defined threshold.
In a nutshell, KYC/AML processes can be efficiently performed by leveraging innovative solutions. Businesses can integrate digital KYC document verification API to verify onboarding customers through the required documents. Also, biometric verification can be done to authenticate them in real-time. Traditional institutions can take advantage of these solutions to streamline customer onboarding experience.