How to Create and Run an Effective KYC Program

With a surge in all things going the virtual route, there has been a significant increase in the number of people making online transactions. This calls for the tightening of laws around evaluating a customer’s validity. This is where digital KYC (Know Your Customer) plays a role, and it is used as an advanced compliance procedure to evaluate customers thoroughly. More specifically, KYC is an essential step in the transaction process to gather crucial background data about a client before starting a business relationship with them. It is facilitated by the client’s provision of relevant documents, information, and cooperation in verification processes. 

Tips to Create an Effective KYC Program 

Creating an effective KYC program in-house is challenging. It calls for proper resources and technologies to implement without high operational costs. It is not something to take a risk with, given that it can cause severe detriments to your business if not implemented correctly. Best to hire a third party that specialises in AI-enabled KYC verification to overcome this. Regardless of whether you will directly be involved in creating the processes, it is essential to know what makes for a good KYC program. To create an effective KYC program, a few things must be kept in mind that can help you get more reliable results. They will be elaborated upon below:

Abiding by the Laws

KYC is a non-binding procedure that is imposed in several countries for the safeguarding of businesses from fraud. The overall structure of guidelines that you must follow remains the same. However, a few differences are based on separate jurisdictions and their respective legislature surrounding business laws. While some may require video KYC verification, others only require documentation. Therefore, alongside laying out specific requirements for your businesses’’ needs, you must also seek legal counsel to understand what is necessary by the law based on your jurisdiction. 

Risk-based Approach

A risk-based approach in this context means examining all the potential areas where there is a risk of links to money laundering, theft, embezzlement, or terrorist activity. You can assess these risks thoroughly by doing due diligence in customer research. A few checks that you must integrate into your process are: 

  • Collecting personal information 
  • Collecting valid identity proof 
  • Going through verification processes to validate the collected information 
  • Checking the data in tandem with adverse media, sanction lists, etc. to see if there is a potential threat
  • Gauging if the client is high-risk and needs further vetting

These steps are imperative for every business to adapt to ensure that the threat of financial crimes is as low as possible. And thereby run an effective KYC program. 

Enhanced Due Diligence

The further vetting mentioned in the last tip of customer due diligence above refers to Enhanced Due Diligence (EDD). This process is only for customers you could not gather enough data on, meaning high-risk clients. High-risk clients can either be individuals or legal entities, and both of them have their procedural steps. These steps include:

For Individuals:

  • Collecting additional data and documentation to see if they have verifiable funds 
  • Multiple rounds of screening on information databases 
  • Finally, deciding on whether or not the company should continue working with them

For Legal Entities:

  • Making a visit on-site is advisable 
  • Verifying the sources of funding 
  • Determining whether the business should work with the client thereon 

All these processes are highly tiresome for in-house teams to perform. This is mainly due to the lack of expertise in the field and the required amount of time. It is best to hire a digital KYC company that assists you in setting up an effective program. 

Steps to Running an Effective KYC Program 

There are five integral steps that you must take if you wish to run an effective and efficient KYC program. After laying the foundation with a solid framework for the program when creating it, these steps will come in handy when the program is up and running. If you hire a KYC verification company, they will take these steps. Nevertheless, it is best to be in the loop and know how the processes work for yourself. 

The five steps are as follows: 

  • Using a risk-based approach, even after establishing the program 
  • Incorporating methods that are compliant with the client’s identity verification – must be in alignment with the laws of the jurisdiction 
  • Implementing KYC customer due diligence to obtain additional proof and documents 
  • Carrying out enhanced due diligence to integrate more checks and balances for high-risk clients 
  • Ensuring ongoing supervision and monitoring of the program 

These steps fully summarise all the steps you need to take to run a KYC program that protects your business. 

Take assistance from a third party to see optimal results for your  digital KYC program. By doing so, you can let go of the hassles of ongoing supervision and create the program itself. Hence, helping your company focus solely on the business side.

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