Financial Services
Ensuring data privacy and security with KYC managed services solutions
Of all the industries that deal with cyber threats and navigate security in the digital space, financial institutions are the most vulnerable. With rising concerns over data privacy and cyber security, the adoption of KYC (Know Your Customer) managed services has been hailed as the most complete solution.
KYC as a service, offered by Infosys BPM, helps organisations meet rigorous regulatory standards – which means preventing hefty penalties for non-compliance – and protect sensitive information. Managed KYC solutions operate on the insights from dedicated compliance Centres of Excellence (CoEs) and a tailored, client-specific approach to digital identity protection and onboarding, allowing for 50-70% cost reduction on KYC operations.
This blog explores how KYC managed services address privacy challenges, bolster security, and ensure regulatory compliance.
The role of KYC as a service in risk management
By relying on dedicated outsourced KYC solutions, businesses ease operational pressures, gain access to advanced security infrastructure, and improve compliance processes, helping to mitigate the risks associated with managing sensitive customer data. This commitment to risk management in KYC enables financial institutions to meet evolving security requirements while prioritising digital identity protection as a key strategy. As such, trends show that banks attempting to process KYCs in-house took 84 days per customer in 2022 and 95 days per customer in 2023.
Scalable, specialised solutions in the form of KYC managed services streamline these time-intensive and sensitive processes. With these solutions, financial institutions can improve customer experience and strengthen their risk management framework, positioning themselves to respond swiftly to evolving security challenges.
Security mechanisms in KYC managed services
Handling sensitive customer data during KYC processes presents unique privacy challenges. Financial institutions must navigate risks like unauthorised access, data breaches, and mismanagement of personal information, all of which could lead to significant financial and reputational harm. According to a study by a multinational IT conglomerate, the global average cost of a data breach reached $4.88 million in 2024, underscoring the urgency for secure data handling in KYC.
Applicable standards and encryption
KYC as a service models employ robust security mechanisms to fortify data protection. For example, advanced encryption protocols, such as AES-256, help protect customer data from external threats. Multi-Factor Authentication (MFA) adds an extra layer of security, making it significantly harder for unauthorised individuals to access systems or data.
Regular security audits and vulnerability assessments should also be standard practices for managed services providers, ensuring that data protection measures remain current in the face of evolving cyber threats and strengthening digital identity protection.
Encryption is fundamental to data security, but effective encryption requires strong key management. KYC as a service ensures secure handling of encryption keys by following industry best practices, such as regular key rotation and secure key storage. Many providers also leverage Hardware Security Modules (HSMs), which are physical devices designed to protect and manage cryptographic keys.
This level of secure key management ensures that the data remains protected even in the event of a security breach. Such practices help KYC as a service providers implement resilient risk management in KYC, virtually precluding unauthorised access.
Privacy considerations in KYC outsourcing
We’ve established that utilising KYC as a service enhances security, but the subject of privacy cannot be neglected. Financial institutions must ensure that third-party providers comply with local and international data protection laws, such as GDPR in the EU or the UK’s Data Protection Act.
Data minimisation — only collecting necessary information — and purpose limitation — using data solely for intended purposes — are essential practices in outsourcing. Managed services providers are typically bound by strict data access controls, allowing only authorised personnel to handle sensitive information. Such practices uphold the integrity of digital identity protection while mitigating privacy risks associated with outsourcing.
Regulatory compliance and KYC managed services
Compliance is central to the successful implementation of KYC processes. Managed KYC providers maintain alignment with relevant regulations, including the AML (Anti-Money Laundering) directives, GDPR, and the California Consumer Privacy Act (CCPA). In some cases, jurisdictions even require annual bias audits and transparent reporting to ensure equitable and lawful data handling.
By outsourcing KYC operations, financial institutions benefit from the regulatory expertise of managed service providers, who stay updated on the latest legislative developments and ensure adherence to compliance frameworks. This proactive compliance management is essential for effective risk management in KYC, helping businesses avoid regulatory pitfalls.
Choosing a KYC managed service provider
Selecting the right KYC managed service provider is a critical step for financial institutions aiming to safeguard sensitive customer data and streamline compliance processes. Here are the essential factors to consider when evaluating potential KYC partners:
- Security infrastructure: Ensure the provider has a robust security framework, including encryption standards and regular security audits.
- Compliance expertise: Choose providers with demonstrated experience in meeting data protection laws and industry regulations.
- Track record: Consider testimonials, case studies, or previous client engagements to gauge reliability and performance.
These criteria help institutions select a provider that will uphold high standards of data security and privacy, reinforcing the organisation’s commitment to secure digital identity protection.
With evolving data privacy and regulatory demands, embracing KYC as a service models is set to become a strategic imperative for financial institutions. Partnering with trusted providers is essential to effectively mitigate risks, safeguard customer identities, and strengthen financial institutions’ standing in the competitive marketplace.