For banks, lenders, and other financial institutions, know-your-customer/know-your-client (KYC) compliance is essential. The United States, the United Kingdom (UK), the European Union (EU), and other global authorities have put strict KYC regulations in place in recent years. These rules are designed to combat money laundering, fraud, terrorism financing, and other illicit activities.
All financial entities that are subject to KYC requirements should have a well-developed system in place to ensure full compliance. Among other things, this means requesting, evaluating, and maintaining the appropriate documents from clients/customers. In this article, you will find an overview of the documents needed for a know-your-customer verification program.
What Is KYC Compliance?
Know-Your-Customer/Know-Your-Client (KYC) refers to the legal responsibility of banks, financial institutions, and other players in the financial industry to verify the identity of their customers/clients. KYC is related closely to the concepts of anti-money laundering (AML) and countering the financing of terrorism (CFT). The modern KYC requirements that apply to financial institutions with American customers come largely from the USA Patriot Act of 2001. Though, other regulations have been adopted.
In many ways, KYC is the foundation of the fight against money laundering, terrorism financing, and financial fraud. The basis of KYC is relatively straightforward: It is mandatory that financial entities verify the identity of a client/customer. They should do so both when a customer initially opens up an account and periodically over time to ensure continued compliance. The bottom line is that KYC requires regulated financial institutions to know who they are working with.
An Overview of Documents Needed for KYC Verification
Broadly speaking, know-your-customer verification standards can be divided into three broad categories. An individual seeking to open an account will need to prove their identity and their address. The documents that they can provide will depend, in part, on where they are from and the type of documentation that they are expected to have given the circumstances. Here is an overview of the different types of documents that may be required for KYC verification:
- Proof of Identity: A government-issued photo identification card, a driver’s license, an American passport, a United States visa, a birth certificate, a foreign passport, or another type of official form of identification.
- Proof of Address: A government-issued photo identification that lists an active address, a driver’s license, a recent utility bill (six months or less), a recent bank account statement, a house deed, or a lease agreement with confirmation that rent has been paid for at least three months.
The core of KYC verification is a reliable form of government-issued identification. Ideally, the client or customer will provide a government-issued photo identification card. The address should usually be confirmed with some sort of secondary, reliable document. As a general rule, financial institutions should not allow the same document to be used for both identity verification and address verification. It is better to have multiple forms of reliable documentation.
Expired Documentation Should Not Be Accepted for KYC Verification
Financial institutions must solicit and review up-to-date and recent documents for KYC compliance. An expired document should not be accepted as sufficient. As an example, imagine that a prospective customer wishes to open an account. They have an American driver’s license and provide a picture. A review of the document shows that the driver’s license expired last month. That should not be accepted as a valid form of identification. Up-to-date documentation should be requested before moving forward. Similarly, if utility bills or bank statements are being used as a method to verify addresses, these documents must be from recent months. The more recent, the better for KYC compliance.
Proof of Age May Also Be Required for KYC
Financial institutions may require a prospective customer or client to provide proof of age. In some circumstances, an underage person may try to open an account that should not be available to them given their age. As an example, in recent years, many cryptocurrency exchanges and other non-traditional financial entities—such as Robinhood—have run into issues with underage customers trying to open an account. Government identification can be used as part of the process for age verification to ensure that a prospective customer/client is reasonably safe. At Integrity, we offer comprehensive and trusted age-verification services to financial entities and other firms. If you have any questions or concerns about age verification, contact us for help.
KYC Compliance Regulations for Financial Entities
Many countries have put KYC standards in place for banks and other financial institutions. In the United States, many of these requirements are derived from the USA Patriot Act of 2001. The United Kingdom’s Financial Services Authority (FSA) and the European Union’s 3rd Directive have similar KYC requirements for financial entities that accept clients from those markets.
Integrity offers comprehensive KYC compliance verification services for financial institutions across the globe. Among other things, our team provides instant identity verification designed to meet the standards of KYC compliance. Using a wide array of international global identity data, we can provide reliable KYC services to a broad range of clients.
With KYC compliance, banks and other financial institutions must meet the relevant legal standards. When possible, it is beneficial to exceed the minimum mandatory KYC requirements to further limit the risk of falling out of compliance or accepting an untrustworthy or unsafe client or customer. A comprehensive KYC verification process reduces liability risk.
Integrity Is a Trusted Leader in KYC Verification
A division of Aristotle, Integrity offers a wide range of trusted identity and age verification. As a global leader in technology for campaigns and organizations, our team understands the importance of comprehensive KYC compliance. If you have any specific questions or concerns about the types of documents that are required for KYC verification, we are here to help. Contact us today to learn more about our age and identity verification services.