Tips for How to Perform KYC Checks

Customer Identification Program

The initial step in the KYC process is the customer identification program, which focuses on gathering and verifying customer details. CIP involves procedures a business must establish and follow to confirm customer identities. Typically, this requires customers to provide documents such as:

• Proof of address
• Government-issued IDs
• Sometimes, proof of income

Businesses must assess the risk associated with each customer. They should consider factors like occupation, country of origin, and transaction types. Customers identified as high-risk require further examination, leading to the next KYC step.

The main goal of CIP programs is to ensure that customers are who they claim to be. An MRZ reader API becomes useful here as it enables software to quickly and accurately verify government-issued IDs like passports, driver’s licenses, and ID cards.

Customer Due Diligence

Customer due diligence (CDD) involves ongoing procedures to assess customer risk. After verifying a user’s identity, companies must gather additional information and thoroughly assess their profile through CDD to identify any suspicious or risky behavior. This process is vital to KYC practices to help companies build trust with potential customers. CDD includes four main requirements:

• Identify all customers or clients.
• Verify all beneficial owners and individuals with control over 20% or more of the company.
• Understand the nature of customer relationships to establish risk profiles.

Monitor customer activities and transactions. This detects and reports any suspicious behavior. Enhanced due diligence is required for high-risk accounts. They may be susceptible to unauthorized access or fraud.

It involves collecting more information about these customers to better understand their activities and reduce fraud risk. Determining the need for EDD involves considering the occupation, customer’s location, transactional behavior (frequency, value, and suspicious patterns), and the payment methods they use.

Electronic Identity Verification

Electronic Identity Verification (eIDV) leverages technology to verify customers’ identities digitally. This process typically involves comparing customer information with electronic databases, using biometric methods such as fingerprints or facial recognition, and applying algorithms to validate digital documents. eIDV enhances the efficiency and accuracy of the KYC process, making it especially beneficial for remote or online customer onboarding.

Continuous Monitoring

Continuous monitoring is a crucial aspect of your KYC processes. It involves regularly checking and verifying customer information to ensure continuous compliance with regulatory standards. The purpose of ongoing monitoring is to help companies detect potential signs of suspicious or illegal activities. In simple terms, since customer information can change over time, ongoing monitoring in KYC compliance helps secure accounts and ensures the organization remains compliant.

Depending on the customer and your risk mitigation strategy, you should monitor various risk factors, such as unusual or cross-border activities that deviate from the norm. If a user appears unusual, you must file a Suspicious Activity Report (SAR).

Challenges in KYC Verification

The KYC verification process, though essential, faces numerous challenges that can hinder its effectiveness. Overcoming these challenges is vital for establishing a strong and dependable KYC system.

• Counterfeit documents: A major challenge in KYC verification is using fake or modified documents by individuals trying to evade checks. Businesses can address this by utilizing advanced document verification technologies powered by AI and machine learning to identify forgeries. To confirm their validity, these technologies can examine document elements like holograms, watermarks, and font styles.
• Outdated information: Another issue is managing outdated or inaccurate customer information. Regular updates to customer data are crucial but can be resource-demanding. Automated data updating tools that periodically refresh customer information from credible sources can be highly effective.

Endnote

Completing all three KYC steps is challenging, particularly for small businesses lacking internal compliance teams to develop strong KYC strategies.