The digital revolution has brought many positive changes to the corporate world. But it has also enabled fraudsters to commit complex and sophisticated fraud that perplexes financial institutions. KYC laws have been in the corporate world since the beginning. But they got more stringent after the financial scandal of 2008. In that financial crime, there was heavy involvement of the banking sector in money laundering. It was a big threat to the global financial system, governments, and global watchdogs. In this context, the global regulatory bodies made KYC compliance more stringent than before. Hence, an advanced KYC compliance system can safeguard financial institutions effectively.
The Scandalous Case from Panama Papers
In this financial fraud case, a number of high-profile leaders and companies took part and a great number of them got exposed. They were also associated with terrorism financing. It motivated FATF (Financial Action Task Force) to take serious action and charge hefty fines to those leaders and businesses. They were also prompted to upgrade their customer compliance systems to keep up with the market trends. The global watchdogs also introduced FACTA (Fair and Accurate Credit Transactions Act) to safeguard consumers from debit card and identity theft cases.
KYC Compliance System and Customer Due Diligence – the Role of Modern-Day Technology
For AML compliance to be effective, the latest technology plays a critical role. It allows businesses to implement faster, and more efficient due diligence procedures along with customer authentication processes. As a result, they saw improvement in their financial transaction screening system as well as RBA (risk-based approach).
Thanks to AI and ML algorithms, companies can automate their AML/KYC processes. Previously, the banking sector ran on manual verification systems which were frustrating procedures. The reporting of scandals, as well as the rise of financial crimes, has given rise to a robust RegTech industry (Regulatory Industry). The main objective of the regulatory industry is to ensure compliance with security regulations to maximize protection for end-users.
How Artificial Intelligence can Facilitate the Adoption of the Latest KYC Compliance?
The latest KYC compliance system facilitates businesses in adhering to their AML/KYC obligations. They are easily able to create an efficient customer profile. The user interface of the system is backed up by advanced AI, deep learning networks, and other biometric features. They ensure a positive experience for the clients because clients get results within a few seconds (in real-time).
The Link Between KYC Compliance and Customer Identity Verification
Customer identity verification has two broad methods that are the following:
- Document Authentication: This procedure happens digitally when a user wants to validate their government-issued records. The system checks the originality of the documents against a set standard. The system checks the data like the name of the client, date of birth, and address. The authentication procedure works across the globe and uses OCR to capture the relevant information from the documents.
- Online Face Verification: it is an advanced level of verification service. It uses the unique facial biometrics expression pattern of the client to verify their identity. The biometric technology uses liveness detection, 3D depth perception, and logic during the process. These features allow the technology to distinguish between spoof attacks and genuine identities.
KYC Compliance Procedure: How does it Work All Over the World?
Every region across the globe has a different set of rules and regulations for business operations. Nonetheless, the standard KYC guidelines are common across the globe, and they are oriented around the following:
- Online identity authentication
- Address verification
In case there are some differences in the KYC procedure of different countries, they are based on the following:
- Applications/Use Cases: KYC checks can only work for a business if they require it and the staff members how they can apply it in their business
- Different Regulatory Requirements: the regulatory requirements can vary from one business to another. It depends upon the risk-based profile of the company and the individual clients. For instance, in countries like Switzerland, and Germany, the staff members should verify the identity of their clients through video-based methods
- Nature of the Business: the type of a company/industry also determines how many regulations it has to follow. For instance, financial companies have to follow more guidelines than an online business store.
Finally, the latest KYC compliance system ensures comprehensive background checks which eventually strengthens the due diligence procedures of financial companies. The KYC compliance system ensures effective risk management during the client onboarding process. The system cross-checks the clients’ information against AML penalty lists and PEPs lists. Businesses can also clients’ profile screening at regular intervals to detect suspicious activity early on.
The advanced KYC compliance procedure allows businesses to design a strong AML/KYC procedure that can automate their client onboarding process. The verification system happens in real time and generates accurate risk assessments for highly risky clients.