Customer KYC Digitization for the Banking Sector – Outlining Key Pillars

Kyc authentication is one of the crucial components in banking systems’ defense measures against criminal threats. In an evolving financial marketplace, these institutions are becoming more vulnerable to threats. For instance, payment fraud, identity theft, money laundering, sanctions violation, and funding of terrorist activities. Furthermore, regulations are readily changing while subjecting banks to more strict customer KYC digitization requirements. 

In order to combat financial fraud, the banking system requires more than just identification during registration. Know Your Customer (KYC) regulations go beyond just customer onboarding. They require banks to conduct long-term monitoring of clients’ activities while monitoring and reporting suspicious activities in time. This blog sheds light on ways in which customer KYC digitization helps the banking sector ensure adherence to AML/CFT compliance. 

Defining Banks’ Know Your Customer Requirements and Identification Policies 

In order to keep up with the present complex regulatory landscape, banks require more efficient customer KYC digitization solutions. This includes revamping internal policies and operations in adherence to regulatory standards. The banking sector is tossing various innovations such as digital payments. Therefore, it has become more crucial for them to employ online know your customer services. These include the Client Identification Program (CIP), Customer Due diligence (CDD), and ongoing activities monitoring mechanisms.

Customer KYC digitization provides the banking system with countermeasures against criminal threats while helping it manage risk and regulatory liabilities. In 2021, around $1.97 billion worth of global penalties were imposed on banks failing to combat money laundering. Keeping this in view, these financial institutions are making effort to build efficient AML compliance programs. Furthermore, where hefty fines lead to the loss of a fortune, high risks of criminal activities also expose banks to reputational damages. 

Keeping the increase in money laundering under consideration, regulatory watchdogs such as FATF, FINTRAC, EU, and others are toughening their stances towards kyc authentication. As per the legal requirements, banks need to perform effective due diligence on customers. They should also outline risk scores and monitor their activities. 

Banks further should identify suspicious activities and report them to respective authorities in time. Customer KYC digitization involves a wide range of activities that collectively add to ensuring secure banking while keeping security and convenience intact. More details regarding the pillars of know your customer policies are in the next section:

Customer Identification Program (CIP)

The foremost step in customer KYC digitization process is to validate the identity claim of clients. This involves verifying their Personally Identifiable Information (PII) such as name, address, and proof of identity documents. Furthermore, banks should cross-validate the backgrounds of customers to ensure they were not a part of any organized crime syndicate or other criminal activities. 

Due to their incompetence in combatting the flow of illicit funds, cryptocurrency came under the direct radar of regulatory watchdogs and strict legal scrutiny. Therefore, to minimize failure in compliance with know your customer requirements, banks need to invest more in developing efficient programs. 

Client Onboarding and Acceptance Standards 

Client acceptance standards refer to the process where banks are required to differentiate individuals they want to assist. In accordance with their internal policies, these financial institutions have certain requirements regarding onboarding. This requires banks to integrate customer KYC digitization for obtaining complete details regarding clients and work with those possessing risk-free status. 

In case banks lack efficient e-kyc solutions they are more likely to onboard fraudsters with high risks of money laundering. Moreover, the Customer Acceptance Policy (CAP) determines the requisites financial institutions need to consider before building a relationship with any customers. These include:

  • Defining criteria for customer onboarding 
  • Outlining customer KYC digitization procedures used to validate clients’ individual identities
  • Verification of sources of funds, UBOs, and corporate information
  • Setting standards regarding details needed to perform online KYC 
  • Cross-check the background as well as financial activities of both clients and companies  

Risk Assessment and Management

Risk assessment and management perform vital roles in creating proactive strategies to analyze and prevent both financial as well as reputational losses. Criminals possess a variety of threats including money laundering, exposure to sanctions, and others. However, banks are more concerned with the prevention of financial loss and protection of customers’ assets. Customer KYC digitization further helps in limiting non-compliance penalties. 

An efficient kyc online verification solution enables banks to retain updated records of customers that aid in ensuring the customers still fall under the acceptable risk parameters. 

End Notes

Customer KYC digitization requirements for banks are becoming more complex as criminal threats continue to increase. Similarly, regulatory bodies are placing more scrutiny on money laundering, organized crimes, and other financial risks. Hence, for keeping their policies in line with the prevailing legal landscape, building an efficient kyc process has become a liability for banks. The digital customer identification solutions ultimately help these financial institutions embrace compliance while driving a positive client experience. 

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