Financial Services
The four key components of Know Your Customer (KYC)
Maintaining trust and integrity in today’s digital and interconnected financial landscape has become a challenge for organisations operating in industries like banking, finance, and insurance. The rise of digital transactions has also given rise to the threat of fraud, money laundering, cyberattacks, and other illegal activities. Even the slightest error in any customer-oriented processes can have devastating financial and reputational consequences for banks and other financial institutions. This is where Know Your Customer (KYC) policies come into the picture, helping businesses verify customer identities, practice due diligence, and ensure regulatory compliance.
Leveraging KYC-as-a-service, modern financial institutions can not only understand the importance and key components of KYC they must focus on but also implement an effective KYC policy to safeguard themselves and their customers.
Why do you need a good KYC policy?
In today’s environment, where financial institutions are always at risk of security breaches and potential illicit activities, a robust KYC policy is essential. A well-structured KYC policy serves as a regulatory guide for identity verification, due diligence, risk management, and implementing Anti-Money Laundering (AML) and Anti-Terrorism Financing (ATF) measures. Through a comprehensive KYC policy, financial institutions can identify potential risks and issues in customer profiles early in the onboarding process. This ensures they can detect any unusual or suspicious activity promptly and take immediate action to mitigate the risk. In essence, a good policy – that addresses the four key KYC components – is vital for protecting financial institutions and their customers, helping prevent fraud, and maintaining regulatory compliance.
Four key KYC components
Implementing an effective KYC policy is a multi-layered approach, covering everything from customer verification to risk assessment. The four key KYC components that form the foundation of comprehensive know your customer policy include:
Customer identification and due diligence
The first and perhaps the most crucial step in the KYC process is customer identification. It involves collecting and verifying essential customer information, including their name, address, date of birth, and national identity number, along with supporting documents. Due diligence goes a step further, assessing customers' risk profiles based on factors like their financial history, business activities, or geographic location. KYC managed services help banks and other financial institutions perform these tasks efficiently, ensuring compliance with regulatory requirements while minimising the risk of fraud.
Customer acceptance policy
A well-structured customer acceptance policy is the extension of customer identification, establishing clear guidelines for onboarding customers. This policy outlines criteria for different categories, ranging from low-risk to high-risk clients, helping financial institutions decide which clients to engage with and ensure they only accept the customers that meet specific regulatory and risk parameters. KYC-as-a-service solutions help streamline this process, offering scalable and compliant solutions for customer onboarding.
Ongoing transaction monitoring
Another critical KYC element that contributes to an effective policy is monitoring customer transactions continuously. This involves tracking and analysing financial activities in real time to detect unusual or suspicious behaviour that could indicate fraud, money laundering, terrorist financing, or any other financial crime. Automated KYC services and managed solutions can facilitate seamless transaction monitoring and alert institutions of any anomalies that could require further investigation.
Risk management
Risk management is another key element that ties together the entire KYC process. Banks and financial institutions can proactively address potential threats through thorough risk assessments for each customer and their transactions. However, risk levels can change over time; therefore, it is crucial for institutions to update their risk profiles and adjust their compliance measures accordingly. Leveraging KYC-as-a-service can allow them to incorporate a dynamic risk management system that can evolve with market dynamics, business needs, and regulatory standards.
Together, these four KYC components ensure financial institutions remain compliant while protecting themselves and their customers from illicit activities. Leveraging KYC managed services can give them the advantage of automating these processes to ensure thorough and scalable due diligence.
How can Infosys BPM help implement KYC managed services?
As know your customer and anti-money laundering practices become key concerns for financial institutions, KYC-as-a-service has emerged as a solution to overcome customer onboarding and KYC challenges plaguing them. Infosys BPM KYC services can help financial institutions transform their operating models while adopting industry best practices, standardising processes, and improving performance with reduced costs. Our service offerings comprise customer onboarding, KYC periodic reviews/renewals, and KYC remediation, helping banks achieve 20-30% faster onboarding timelines, 50-70% KYC cost reduction, and 40% reduction in false positives. Our customised, end-to-end KYC managed services can help financial institutions ensure compliance, safeguard themselves, and meet client requirements as they navigate the interconnected financial landscape.
