Know Your Customer (KYC) processes are important if you’re running a financial institution since customers can pose a significant risk that could in some cases lead to money laundering and other illegal activities, leaving you susceptible to harsh consequences.
Companies must do their due diligence and conduct background checks to ensure that customers reveal their true identity and are not involved in illegal financial activities that could jeopardize the company’s reputation.
Let’s explore three ways to Know Your Customer compliance.
1. Create a Customer Identification Program (CIP)
Companies must create a customer identification program because identity theft is on the rise, and it is difficult to know if someone is who they say they are or pretending to be someone else.
This is not just a recommendation or a convenient program to follow; it is part of the law to identify your customers and review their financial transactions to know whether they can be trusted.
The CIP prevents the possibility of illegal fund transfers, terrorist funding, and corruption from occurring, allowing organizations to combat the surge in money laundering and protect themselves from internal fraud.
When opening up a financial account at a financial institution, your customers must provide personal details, including their name, date of birth, address, and identification number.
This allows the institution to verify its claims and compare this information with others in the database, ensuring its operations remain secure against internal threats.
2. Prioritize Customer Due Diligence (CDD)
Before you can take a financial client on board, you must first determine whether they are trustworthy by prioritizing customer due diligence, which protects the institute from criminals and risky individuals.
CDD involves collecting information from various sources to verify whether a customer is who they present themselves to be and if they have any known risks associated with them.
By learning about a customer’s identity and place of residence, financial institutions can conduct the necessary research to learn more about their business transactions and form a complete risk profile.
3. Monitor Your Customers
Ongoing monitoring ensures that your customers do not find ways to deceive you or fall under the radar, putting them in the spotlight so they are deterred from conducting any illegal activities under your nose.
You may develop risk aversion strategies to monitor financial and out-of-area activities and adverse media mentions, pointing to the possibility of fraudulent happenings.
Reviewing your current accounts and their risk profiles makes it possible to check whether the records are up-to-date and if the bank statements reflect a customer’s stated intentions.
Although background checks are the first part of the process, this constant monitoring ensures that nothing is swept under the rug and any changes are verified according to present criteria.
The Verdict
Know Your Customer (KYC) compliance ensures that financial institutions stay ahead of the curve and avoid making any major mistakes that could result in litigious actions against them.
If a customer has used your financial institution for illegal activities, you will be held responsible, meaning it is in your best interests to safeguard your institutions against internal threats.
Intellinz offers cutting-edge security solutions with KYC Due Diligence to ensure you can invest safely and not worry about any fraudulent activities when buying or selling a business.
