KYC Verification: Your Complete Guide

Know Your Customer (KYC) is a set of internal identity verification procedures for confirming the actual identity of a potential new customer before opening an account or processing applications for major financial transactions. KCY Verification plays a significant role in the fight against financial crime. Here’s what you need to know about KYC, who needs it, and why it’s important.

History of KYC

Know Your Customer regulations first emerged in the 1990s when the burden of proof regarding identity verification was placed on financial institutions rather than on the individual. Since those early days, the threshold for satisfying KYC verification requirements, as well as the list of institutions operating under KYC regulations, has expanded dramatically. Regulations surrounding KYC were expanded in the early 2000s in response to the 9/11 attacks and the uncovering of illegal money laundering schemes used to finance terror.

The Purpose of KYC Verification

The purpose of KYC verification is to determine the level of risk posed by a new customer or transaction and to assess whether the customer meets the institution’s internal requirements for use of their services. In this way, KYC verification is a necessary complement to Anti-Money Laundering (AML) laws. Financial institutions must ensure that clients are not using their services to engage in criminal activities. Internal client-onboarding processes help identity verification and prevent money laundering, terrorism financing, and other illicit financial transactions.

Who Needs KYC Verification?

In 2003, President George W. Bush signed the PATRIOT Act into law. Section 326 of the PATRIOT Act set forth minimum standards for financial institutions relating to the identification and verification of any person who applies to open an account. It was the PATRIOT Act that expanded KYC regulations and the list of entities operating under these statutes. The Act defines “financial institutions” very broadly, encompassing a variety of entities including banks, agencies/branches of foreign banks in the United States, credit unions, securities brokers, commodities dealers, insurance companies, and more. But whether a business or organization is technically subject to KYC regulations or not, companies of all sizes are embracing KYC procedures to protect themselves and their customers.

How KYC Verification Works

Under Know Your Customer regulations, financial institutions must have reasonable certainty that new and existing clients are in fact who they claim to be. To do this, customers must provide credentials to prove their identity. The actual legal requirements differ across jurisdictions from state to state and country to country. Typically, KYC verification requires two forms of ID, (such as a driver’s license, birth certificate, social security card, or passport), third-party document verification, and ID proofing through facial, voice, or biometric verification.

How COVID Made KYC Verification Even More Important

The Covid-19 pandemic pushed customers and banks to rely more heavily on digital channels and FinTech. According to Forbes, nearly two-thirds of checking account applications in early 2020 were submitted online. Since 2019, there’s been a shift as more people turn to online solutions to open bank accounts instead of going to the bank in person. This trend isn’t likely to change as more people turn to mobile and online banking.

As more and more people access financial services through digital channels and FinTech platforms, in-person customer identity verification will become increasingly rare. This seismic shift in how consumers access financial services makes it more important than ever for financial institutions to adhere to KYC regulations for the sake of a safe, stable financial industry.

Customer Impact of KYC Verification

Making the KYC Verification process work seamlessly can be difficult. To know your customer, you need to take each individual through a multi-step process that establishes and verifies their identity. But there is no silver bullet solution that works for all customers. Nor would a company want a one-size-fits-all approach because not all customers are the same or pose the same potential risk. For some customers, KYC Verification may involve presenting identity documents and leveraging credit bureau data. For others–particularly for individuals without an established credit history–other modes of ID verification are necessary.

Work with Integrity for ID Verification Solutions

KYC Verification can easily become overly burdensome to a customer’s onboarding journey. To help meet your KYC obligations, you need an identity verification solution that can deliver both customer convenience and trusted protection to your business.

Integrity by Aristotle is here to help. We can provide your business with ID Verification solutions that leverage on-device technology, biometric authentication, compliant machine learning, and identity experts to achieve accurate results delivered in a seamless digital environment. Contact us today to learn how we can help you meet your business security goals while exceeding your customers’ expectations.

Recent Posts



Recent Posts

Recent Comments