KYC process was initially implemented in the financial sector but with time, it has become a part of the non-financial sector. It is an identity verification procedure that businesses perform before they onboard any clients. It ensures the authenticity of the customers and when performed in different sectors, it is called KYT(Know Your Transaction), KYP (Know Your Player), and KYB (Know Your Business).
As the world is digitized, the manual KYC process is no longer an option to meet KYC compliance. Thus digital KYC solutions are taking the turn to mitigate frauds and criminal activities and meet global KYC compliance in a better and more effective way.
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Components of KYC
KYC verification is performed while the customer is onboarded which identifies the potential harms that an individual can pose to the company. Based on the individual’s risk level, there are three types of Know Your Customer process. For instance, a politically exposed person requires comprehensive monitoring as compared to a normal account holder who has made a few transactions.
1. Customer Due Diligence
It is a basic KYC process that does not need an in-depth screening of a client. CDD (Customer Due Diligence) is performed on clients that are not classified as medium or high-risk profiles.
2. Standard Due Diligence
It is the KYC procedure that is performed on those famous or public authorities who are considered as low or medium risk profiles. Each country has different laws and policies. Thus, it varies from country to country when carrying out an SDD (Standard Due Diligence).
3. Enhanced Due Diligence
Unlike CDD and SDD, high-risk profiles are passed through in-depth screening to check their indulgence in corruption, money laundering, and terrorist financing. EDD is also carried out on the Ultimate Beneficial Owners of the firm to ensure that they are not a part of any sanction, wanted, or PEPs list to prevent the company from such fraudsters. Moreover, EDD is also performed to check the nature of any business and also the objective behind such bigger transactions. Due Diligence is an important step to prevent threats by running additional checks to keep the company safe and secure from money launders and any bad actors.
Industries Using KYC
Know Your Customer process is a great bet to eliminate fraud and stay compliant with the global AML/KYC regulations. Besides providing a frictionless and seamless onboarding experience, it helps different industries around the globe which are as under:
1. Banking and Insurance
One of the most significant applications of the KYC Due Diligence is in banking and financial institutions. As they provide account opening services to different clients, they greatly rely on the KYC and AML solutions to eliminate identity thefts and financial crimes including money laundering.
Not only banks, but the insurance companies make use of the KYC solutions as they offer online registration to that prospective policyholders. KYC helps the insurance companies to verify that the customers are actually the ones who they claim they are. Then there are many other firms such as loan companies, mortgage companies, and brokerage firms that use KYC services to add additional security to their daily operations.
2. Gaming and Gambling
The gaming industry is growing rapidly and is expected to reach over 94 billion dollars by 2024. But with the revenue that the industry is generating, it is also welcoming many bd actors. So, they are mandated to follow the KYC laws and run KYC screening including address and age verification to keep the industry clean from minors and all kinds of bad actors.
3. Travel Industry
With technological advancement, the travel industry has seen a remarkable change. Technology has made things easier even for the travel industry across the globe. They can improve and enhance their customer experience through robust KYC procedures. With the technology, online frauds have also sophisticated. Thus, KYC helps prevent the risk of fraud and criminal activities to a great extent.
4. Crypto Exchanges
Technology has also revolutionized the crypto industry and at the same time become a breeding ground for money launders. As per the financial crime report, almost 2 trillion dollars of money is laundered each year. Thus, the crypto industry is in dire need of a robust verification solution and the KYC (Know Your Customer) is the best choice.
As businesses are going digital, the need for online KYC is increased. It not only performs an in-depth customer verification but also protects the companies from penalties and hefty fines as long as they follow the global KYC compliance.