If you’ve been led here by the question “KYC, what is it and why is it so important for companies?”, you’re in the right place.
In 2018, a well-known financial institution had to pay a €775 million penalty for its passivity to prevent money laundering.
Prosecutors who prosecuted the case concluded that the bank’s clients “were able to launder hundreds of millions of euros because no one was supervising them.” This non-compliance, which occurred continuously between 2010 and 2016, led the organization to implement a fraud prevention program.
At the heart of this plan was the concept of KYC (Know Your Customer), the key to compliance with current regulations . Properly managed, KYC not only avoids penalties, but also offers significant operational and efficiency benefits. We give you the details!
What is a company’s KYC and how does it work?
You already know what KYC stands for, but what exactly is KYC? KYC is a globally widespread concept, both in business jargon and at the legislative and regulatory level.
In simple terms, if we want to answer what a company’s KYC is, we will say that it is the process that requires organizations to know certain information about their customers and confirm its veracity. In other words, KYC verification is a mandatory process for verifying the identity of your customers. verification of the identity of their customers, prevent fraud and ensure compliance with legal regulations, such as the prevention of money laundering.
This process works by collecting and validating personal or financial information, such as identity documents, proof of address and tax data, before customers access financial or commercial services.
For example, do you remember that the last time you opened a new bank account you were asked if you were self-employed or employed and how much income you earned per year? Well, that’s classic KYC. However, the KYC process is not limited to the beginning of the business relationship, but should be applied periodically.
What is the KYC process? Key steps
The KYC process can be broken down into several essential steps that ensure regulatory compliance and accurate customer verification:
Identity verification and KYC data collection
It is the first step in the process and the foundation on which everything is built. Each company must unequivocally establish the identity of the person it wishes to become a customer, using a KYC document.
A KYC document is any official document used to verify the identity of a person or entity as part of the Know Your Customer process. Data such as full name, address, date of birth and a valid identification document, such as an ID card or passport, are collected.
This data is critical to confirm that the customer is who they claim to be and is a key step in both digital onboarding and face-to-face onboarding.
KYC information analysis
Once the KYC documents and data have been collected, the next step is analysis. Companies verify the validity of the information provided by checking the data against national and international databases.
This analysis makes it possible to detect any irregularities or suspicious activity that could put the company at risk, such as attempted fraud, money laundering or terrorist financing.
Banks, in particular, must know the origin of their customers’ funds and activities to ensure that they do not come from criminal activities.
Maintenance and updating of information
The KYC process does not end with the initial verification. Companies must keep their customer information updated on a regular basis. This includes periodically requesting identification documents and reviewing financial activities to detect unusual behavior.
Constant updating ensures continuous compliance with regulations, avoiding possible sanctions. And it is important to note that KYC processes and results must be aligned with regulations such as AML (Anti-Money Laundering), the GDPR (General Data Protection Regulation) and eIDAS (European Digital Identification Regulation).
KYC verification: what is it and how is it performed?
KYC verification is the process of confirming a customer’s identity through KYC data collection and validation. To perform this process, companies use a combination of documents and advanced technologies to ensure the authenticity of the information.
Documents required for verification
To carry out a successful verification, several KYC documents are needed, such as ID card, passport, utility bills proving the address and, in some cases, additional documents confirming the origin of the customer’s funds, especially in financial sectors.
Technologies used in KYC verification
Today, technology plays a crucial role in KYC verification. Biometric biometric authentication systems, facial recognition, artificial intelligence and blockchain are used to ensure that verification is fast and accurate. These tools allow companies to verify identities remotely without compromising security.
Is KYC mandatory? Compliance and regulations
KYC compliance is not optional in many industries, and penalties for non-compliance can be severe.
Which companies are required to implement KYC?
The KYC process is mandatory in those sectors for which regulations make it necessary. Mainly, the AML5, AML6 and, RGPD and eIDAS regulations at the European level. Examples include companies in the insurance, financial, real estate and other sectors that deal with large sums of money or manage client assets.
→ Learn how to choose the authentication methods methods most suitable for your company.
Consequences of non-compliance with KYC regulations
Failure to comply with KYC can lead to significant financial penalties and loss of reputation for the company. Organizations that fail to properly implement KYC regulations can also face suspension of operations and lawsuits.
Advantages and benefits of applying KYC
Quality KYC management offers several advantages to companies:
- Remote, but also face-to-face, efficient and fast customer acquisition processes.
- An engaging user experience early in the customer lifecycle.
- Operational cost savings.
- Simplification and reliability of authentication processes, once the customer has been registered.
- Agility in updating processes or practices in the event of regulatory changes or requirements from regulatory agencies.
- Prevention of heavy penalties.
- Regulatory compliance with guarantees.
- Obtaining and safeguarding certified customer information for use in potential litigation or to respond to requests from judicial authorities.
Do you want to know how to send a certified email ? Discover our guide and learn the benefits of using it for companies!
How to apply KYC in your company?
The application of KYC in companies involves two clearly differentiated but interconnected phases:
KYC Onboarding
The process begins with the arrival of the customer. In this phase, all the necessary information is collected to validate the customer’s identity.
In the case of digital onboarding, two relevant concepts come into play as part of the Certified Digital Identification solution solution of MailComms Group. These concepts are identity verification and authentication and we have explained them in detail with benefits, types of systems, features, biometric authentication and electronic signature.
Obviously, face-to-face onboarding has the same objective as digital onboarding, but here the human factor provided by your employee is fundamental and simplifies the identity verification of the future user.
Customer relationship maintenance
As mentioned above, once the customer has been onboarded, the company must continue to verify and update data on a regular basis. This not only helps prevent risks, but also ensures that the company complies with current regulations at all times.
KYC automation, especially in the maintenance phase, allows companies to manage large volumes of information more efficiently, reducing errors and optimizing response times.
Interested in learning more about the benefits of proper KYC management?
If you want to learn more about how a quality KYC management can benefit your company, at MailComms Groupwe are specialists in digital onboarding processes and omnichannel communications, with solutions with legal value, such as the user authentication system.
Tell us your needs and we will help you design and implement a reliable, effective and flexible KYC process, adapted to the new regulatory requirements.