KYC or Know Your Customer measures have become a vital inclusion in any businesses on-boarding process, taking into account highly regulated markets. Whether it’s a digital business, storefront, or an e-commerce platform.

The need to vet on-coming customers has become a mandatory necessity to combat the threats faced by these companies from identity to document fraud, including financial crime. Compliance is a complex topic, often involving long logic flows, business cases, and jurisdictional law applications. What KYC verification means for businesses is an important understanding to grasp, that we shall clear below.  

Basic Classification of Customers and Diligence

For most businesses, KYC verification is a straightforward process of applying diligence measures by verifying the identity of their customers. In reality, it is not that simple and these companies which are regulated should work differently. Regulated firms are bound to adhere with local and global anti-money laundering regulations, that conform to the domestic requirements of the respective home country while sufficing global regulatory requirements. This includes applying diligence measures according to the customer’s classified risk profile:

Customer Due Diligence – these are standard measures applied for verifying an identity of the individual usually through the help of Face and Document Verification.

Simplified Due Diligence – these are measures applied through identity verification for customers that pose the least risk and exhibit no apparent external threat to the business. Or where previously KYC has already been performed. 

Enhanced Due Diligence – these are measures applied through identity verification for customers that pose a very high risk to the business. This can be from the customers home jurisdiction or their customer profile. In addition to their type of business and transaction profile. EDD measures also include real-time monitoring of the business relationship and funds. Where each transaction is heavily scrutinized and authenticated with the reasoning for any processing. 

Checks Required for KYC Compliance 

  1. Identity Verification
  2. Face Verification
  3. Document Verification
  4. Verification of Address.
  5. PEPs and Sanction Screening.
  6. Identification of Beneficial Owners (BO) and actors with rightful power.
  7. Monitoring any changes in BO or people of command in a company.
  8. Audit Trail and secure archive of checks and docs (encrypted at transit and rest).
  9. Appropriate document retention and storage capacities.  

Is KYC compliance necessary for Organisations to Implement

KYC compliance is not taken lightly by any company and is considered to be a great hassle in most cases of implementation. As regulations tighten around the world for KYC compliance, companies found in violation of implementing the necessary measures shall be susceptible to financial and legal repercussions.  Companies found in absence of implemented anti-money laundering regulations are likely to face non-compliance fines or penalties. If companies seek to continue operation, must comply with global AML regulations. 

KYC compliance is a factor which cannot be overlooked and businesses need to seek compliance as early as possible to avoid unnecessary consequences. Businesses need to consider the aspects mentioned above to truly gauge the idea of non-compliance repercussions and also resources that will be put in a compliance program to fruition. The necessary compliance cost incurred today is not comparable to the financial and reputational losses of tomorrow.