What is the KYC process?
Know Your Customer (KYC) is a verification system that has been built over the course of years to fight against crimes like identity theft and money laundering. Financing authorities like FATF (Financial Action Task Force) have been investing their resources in ensuring a strict authentication procedure. This is carried out by companies, especially digital banks before onboarding a customer.
KYC process includes gathering information from a customer, establishing their identity, validating that data with local or global databases, background checks of documents and location, biometrics, and understanding the purpose of the client.
Why?
To tackle the threats of cybercriminals and identity thieves that misuse the data for transferring assets to their names. This includes cases like money laundering and financing terrorist organizations.
Enhanced Due Diligence is a part of making KYC possible.
How is it linked to EDD?
Kyc Aml compliance authorities have been demanding firms make the verification process more accurate and safer. It ensures that only low-risk profiles are allowed to complete the onboarding process or other associated activities. It is only possible through updating Enhanced Due Diligence.
Enhanced Due Diligence (EDD) is a set of authentication steps that classify profiles into high-risk and low-risk. In the case of a low-risk profile, the standard CDD (Customer Due Diligence) is carried out automatically through AI. However, if a customer is detected as suspicious, EDD is applied. Therefore, through this, enterprises focus on being KYC compliant.
It is an attempt to track down criminals and reduce the amount of money lost by businesses through fines or penalties.
What Industries Need An EDD Checklist?
Does every type of business need EDD in its KYC process?
No, although with time a lot of firms are adopting verification procedures. Specifically, EDD is not a requirement for every digital business. For example, an E-commerce store selling clothing items doesn’t need to know about your bank statement, it’s unnecessary.
However, some industries require hefty investigations to avoid fraudsters.
These can be:
- Real Estate Enterprises Signing Contracts With Clients
- Digital Banks Opening Accounts
- Insurance Companies
- Bill or Tax Payment Services
- Crypto
- Businesses dealing with high-value money
What KYC Documents are required for successful EDD?
To successfully carry out a KYC-compliant EDD there are various KYC documents needed by authorities. Since the verification is done much more rigorously, the list of documents is longer than required in SDD.
Fintech firms like banks might require:
- ID Card – Comprising of Name, Date Of Birth, Permanent Address
- License – Reaffirms The Age
- Bank Statements
- Tax Payment or Bill Documents
- Proof of source of Income
These documents may vary from bank to bank.
Kyc Aml Compliance: What is it?
You must’ve observed that wherever verification is mentioned, KYC and AML pop up. Both are two distinct things.
- KYC – It is gathering information, confirming it, and establishing an identity.
- AML – Measures Fintech enterprises take that include extensive monitoring of transactions and recordkeeping.
These both are integral parts of kyc aml compliance for banks.
Benefits of Edd in banking
As you read above how strict enhanced due diligence practices massively assist companies in avoiding huge fines or penalties. There are other crucially important advantages Edd in banking brings to the table for the Fintech industry. Let’s dive into them!
- Solves Money Laundering Problems
Money laundering has indeed turned into a global pandemic that infects more than 100s of businesses. As a matter of fact, it is reported that almost $800 billion is laundered every year. Therefore, an updated Enhanced Due Diligence system is the need of the hour against this serious threat.
- Avoids Expensive Fines Or Penalties By Authorities
This allows banks to avoid paying hefty fines to financing authorities minimizing loss of money and assets.
- Better Customer Experience
A trustworthy EDD in banking is what will bring in new clients. With a perfect verification system, customers will find onboarding seamless and secure. This will boost the overall customer experience making EDD a profitable step.
- Credible Reputation
The higher the credibility, the more positive the reputation. Banks can leverage this to their advantage and pool in wealthy giants globally.
- Detecting PEPs
PEPs – stands for politically exposed person. In finance, PEPs pose a greater threat to corruption cases like bribery and money laundering.
KYC procedures: Significance Of Keeping Data Up-to-Date
What if a low-risk profile starts involving in suspicious activities after the onboarding process?
We cannot predict and be certain about the actions of any individual, even if they are considered low-risk previously. Therefore, it is essential to keep the data up-to-date to carry out KYC procedures properly. Monitoring future activities holds great significance in banking.
Key Takeaways
- EDD is a part of KYC.
- What documents are required for EDD banking
- The type of industries that are prone to fraud threats
- Benefits of accurate EDD and updating customer’s data from time to time.
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