One of the most important aspects of a robust compliance mechanism is the continuous improvement and upgradation of the KYC (Know Your Customer) process. Customer Onboarding is a crucial step for every business and tackling the risks of Money Laundering and Terrorism Funding. KYC Processes are responsible for the enhanced Anti-Money Laundering (AML) practices in the business.
Here are 5 Steps to improve KYC Processes and make the customer onboarding experience seamless.
Understanding the Regulatory Requirements
For an efficient and effective KYC process, robust research is required on both the manual and automated KYC processes. Then, firms & financial institutions need to keep a close eye on the updates and regulations of the jurisdictions they are operating in. Since KYC regulations are updated from time to time regularly, the existing KYC Process needs to be dynamically updated as well to stay compliant and up-to-date with the latest regulatory environment.
Implementation of a Risk-Based Approach
In the second step, the compliance professionals and other associated members of the regulatory compliance team can consider a strong Due Diligence process first. This includes all levels of due diligence where each individual connected to the financial system must conduct due diligence and report suspicious activity. Customer Due Diligence, Enhanced Due Diligence, and Self-Due Diligence are required at different stages of the onboarding process. Practicing Due Diligence reduced the risks of money laundering and other financial crimes in KYC processes. This mainly includes determining the risk factors at different levels of the due diligence process. Demographics, Previous activities, amounts of transactions, and customer type can make a good list of due diligence risk factors.
What you can do is improve the overall Due Diligence methods to reduce the risks. You need to keep in mind False Positives and False negatives when carrying out due diligence. For this, an in-depth understanding of your KYC processes and implementation of upgrades is necessary.
Customer Information Collection and Verification
Information about the customers is gathered right from the start of the KYC Process. When a customer fills in the initial details like name. proof of address, and other supporting details the information through an automated KYC (eKYC) is instantly recorded in a database (mostly a blockchain). Once the customer’s information is collected, it is verified through identity verification services or manual matching.
This step can be improved for the overall improvement of KYC Processes by introducing AI-based Identity Verification and Machine learning algorithms. These two concepts will not only reduce the time & effort of information collected through process automation but also save cost and increase the quality of the data & verification process as well.
Embrace Technology of KYC Processes
Digitization and embracing emerging technologies are a need of the time. The entire business world is shifting to AI-based solutions in their own procedures. As discussed above, AI (Artificial Intelligence) and ML (Machine Learning) are revolutionizing the compliance industry and KYC vendors are swiftly embracing them. So, as a KYC service provider or a compliance professional, you need to understand its importance and try to match the pace of technological shifts.
Do note that money launderers and criminals are also advancing with the advancement of technology. They are always attacking financial integrity and security with new and darker ways of manipulating the system and compromising its safety. So, regulators and other industry professionals need to stay ahead of the game in compliance technology and try to practice deep-learning techniques while implementing countermeasures like AML and CTF.
Enhanced Ongoing Monitoring & Updated Data
Ongoing Monitoring or continuous monitoring is one of the most important steps in KYC Processes. An established framework for monitoring customer activities will identify and report suspicious or unusual activity or trends. Since anyone can change their behavior or trend irregularly or break the pattern, Regular updates are required in ongoing monitoring protocols and customer profiles must be updated regularly to confirm if suspicious activity exists.
The pattern or trend can be broken when a person is facing an issue or an ongoing situation. If the customer profiles are regularly updated and ongoing monitoring is strong enough to effectively identify and report, it will be a lesser chance to raise a false positive or a false negative.
Also Read: How to Get Proof of Address Documents for KYC Regulatory Compliance?
Wrap-up Words
Overall, it is appropriate to say that KYC Processes can be improved in a number of ways other than the above-discussed points. Even these steps may vary and evolve depending on the industry, jurisdiction, and business environment. A bit of practical advice would be to consult a KYC professional or a legal consultant who can guide you through the best-suited KYC Process and how to improve as per your requirements.