The KYC onboarding process is the customer due diligence (CDD) process that regulated entities such as banks are required to undertake before they onboard a new customer. The ultimate goal of the KYC onboarding process is to fight fraud, money laundering, and tax evasion.
The KYC onboarding process is crucial for ensuring compliance with anti-money laundering (AML) regulations. The process takes place before a new customer accesses a service for the first time or opens an account. It ensures that the business has verified the identity of that customer and has acknowledged the level of risk the customer poses.
In this guide, we’ll cover what the KYC process is. We’ll also discuss why it’s necessary and what it involves. We’ll conclude by taking a detailed look at how our AML and KYC onboarding solutions can help you carry out the process swiftly and effectively.
The KYC onboarding process refers to the steps a business must take in order to verify a customer’s true identity and risk level. The process must be carried out before the customer is given access to an account, product, or service.
In essence, the KYC onboarding process is the customer due diligence (CDD) process that regulated entities such as banks are required to undertake before they onboard a new customer. The ultimate goal of the KYC onboarding process is to fight fraud, money laundering, and tax evasion.
Around the world and across different industries, KYC onboarding processes vary. However, generally speaking, a business must collect the following basic pieces of information from a customer:
As part of the KYC onboarding process, a business may also need to obtain a piece of information that is unique to the jurisdiction they’re operating in. For example, in the UK, a customer may be asked to provide a national insurance number. Meanwhile, in the US, a customer may be asked to provide their social security number.
Once a business has obtained this information from a customer, they must verify it. They must also verify that the person providing the information is the person the information belongs to. To do this, the business will usually ask the person to provide a government-issued identity document and a selfie.
Although we’re only discussing the KYC onboarding process here, it’s also important to point out that businesses should also carry out continuous monitoring of their customers. As part of their KYC practices, a business should also monitor and track the transaction history of their customers and their account activity. This way, a business can detect suspicious transactions and prevent fraud.
The aim of KYC onboarding is to confirm the identity of a customer and to establish the associated risk of doing business with them. This means that as part of the KYC onboarding process, you not only have to establish who the customer is, but also what their intentions are and what their transactions are likely to look like.
Practically, the KYC onboarding process usually involves the following steps:
KYC processes are critical for combating money laundering and other serious financial crimes. For this reason, KYC processes form part of anti-money laundering (AML) and counter-terrorist financing (CFT) regulations.
As they’re a central part of AML and CFT regulations, KYC onboarding checks are compulsory. This means that banks are required to perform them every time a new customer attempts to open an account or access a new service.
AML regulations require that a company both checks their customers during the onboarding process (as we’ve outlined above), and then monitors their transactions on an ongoing basis. A customer’s transactions should be relatively consistent and in keeping with their risk profile. If a customer’s transaction profile changes suddenly, it may be an indication of suspicious activity.
If a business fails to conduct the KYC onboarding process and does not monitor the customer’s transactions on an ongoing basis, then they will not meet their AML and KYC requirements. In this instance, a business will suffer huge reputational damage and will face huge fines.
Establishing the correct KYC onboarding processes is a vital part of ensuring that your business meets its regulatory requirements. However, if your KYC onboarding processes are too burdensome or inefficient, you’ll find that your conversion rates drop sharply.
Businesses that offer clunky, lengthy, and time-consuming onboarding processes struggle to convert customers. For this reason, you should consider how your KYC onboarding process can be streamlined and automated, without sacrificing anything that is a regulatory requirement.
For example, by using a dedicated KYC and AML compliance solution, you can automate 98% of document checks and verify the identity of your customers in only six seconds.
On top of this, you should also ensure that you guide your customers through the KYC onboarding process. By making it clear to your customers exactly what’s expected of them, you can make sure that the vast majority of your customers are verified on the first try. If resubmissions aren’t required, the process will be frictionless.
At Veriff, we’ve developed a class-leading AML and KYC compliance solution that helps you fight financial crime. As well as supporting your KYC onboarding process, our solution also helps provide end-to-end anti-money laundering compliance.
Our solution can help you verify the identity of your customer, screen them against PEP and sanctions watchlists, check for adverse information and media, and provide ongoing monitoring.
To discover more about how our solution can help your business, talk to us today.