What is Know Your Customer (KYC)?
KYC can be defined as the process organisations follow to collect relevant data from their customers to establish their identity and risk profile. For instance, investors must be verified before participating in a funding round and, likewise, individuals opening a bank account. This KYC requirement is placed on regulated firms by Anti-money laundering (AML) regulations to ensure that they conduct business with legitimate and unsanctioned entities.
What is Anti-money laundering (AML)?
AML refers to measures, policies, and controls employed by regulated institutions and governments to prevent, discourage, and combat Financial Crime (FinCrime), especially money laundering and terrorism financing. AML also encompasses Sanctions, which governments or international bodies use to coerce specific regimes to change their behaviour. Moreover, a regulated institution's AML policy forms part of its broader AML compliance program, which is developed to comply with its local AML regulations' requirements.
How do KYC and AML differ?
Though institutions may blur the lines between AML and KYC, they are two distinct compliance frameworks. They have different scopes, processes, and objectives, as depicted in the comparison graphic below. AML is much broader in scope and typically encompasses many components such as:
- KYC procedures.
- AML standards and guidelines.
- Risk-based AML policies.
- AML staff handbooks.
- Ongoing risk assessment and continuous monitoring.
- AML compliance training programme for staff.
- Internal controls and internal audits.
- Escalation matrices and procedures.
With that said, an effective AML policy requires a reliable KYC process, as without establishing customers’ true identity and their source of funds, FinCrime cannot be prevented or detected. On the other hand, AML laws and policies inform the risk-based approach that needs to be followed for KYC procedures.
AML/KYC Compliance Solutions
Achieving compliance with AML/CFT regulations requires significant administrative effort and large amounts of data analysis. Hence, many firms opt for automating AML processes with various innovative tools to reduce human error and avoid potential compliance penalties. Automation not only offers improved speed, accuracy and efficiency to AML; it also helps firms quickly respond to new regulations and continue to deliver the highest standards of compliance.
For instance, AML solutions can quickly analyse customer data, look for specific risk flags, and raise real-time alerts to Money Laundering Reporting Officers (MLROs). They also help with the automation of KYC procedures through electronic Identity Verification (eIDV), which typically involves the following two steps:
- Acquisition of an identity document, e.g. passport, national identity card or driver's license. The ID document is then analysed across multiple vectors such as authenticity, consistency, expiry, and so forth.
- Establishing that the document holder is indeed present during the transaction. This is achieved by taking a selfie/video along with a passive or active liveness check.
At ComplyCube, we have built a powerful AML/KYC Compliance stack, on top of smart workflows and APIs. Our unique platform enables firms to quickly implement a risk-based AML/KYC framework bespoke to their needs. Businesses can also leverage our state-of-the-art Mobile and Web SDKs to create user-friendly KYC processes that verify customers' identities effortlessly.
Check out www.complycube.com to learn more about our platform!