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Know Your Customer (KYC) is part of Customer Due Diligence (CDD) used by regulated businesses to verify the identity of their customers and assess potential risks of money laundering, financial crime, and other illicit activities.
KYC is a fundamental aspect of Anti-Money Laundering (AML) measures, aimed at preventing financial crime such as fraud and identity theft. The importance of KYC lies in its ability to ensure that financial institutions, and other industries, are not used for criminal activities and to protect the integrity of financial systems.
Why different industries need KYC
Different industries require KYC to mitigate various risks associated with financial transactions and customer interactions. KYC processes help organisations comply with evolving regulatory requirements, prevent fraud, and enhance trust.
By effectively verifying the identity and risk profile of each customer, businesses can tailor their services and ongoing compliance efforts more effectively to ensure compliance with laws and regulations, which vary by industry.
Regulations and requirements for KYC
KYC regulations and requirements are enforced by government agencies and international regulatory bodies. These regulations stipulate the procedures businesses must follow to verify customer identities, monitor suspicious transactions, and report suspicious activities.
KYC compliance involve maintaining thorough records and audit trails to demonstrate adherence to these regulations. An example of KYC regulation is the 6th Anti-Money Laundering Directive which is enforced by the European Union. Regulated entities are required to comply with the 6AMLD to prevent fines, suspensions, and reputational damage.
KYC in banking
In the banking sector, KYC processes are crucial for preventing money laundering and terrorist financing. Banks must verify the identity of their customers at the point of account opening, making a concerted effort to understand the nature of their intentions, and assess the risk they pose.
This involves collecting detailed information during account opening including name, address, date of birth, and government issued identity documents to verify that the customer is who they claim to be.
Banks are also required to implement transaction monitoring systems to identify any high-risk transactions or movement of funds from current customers.
As more customers look to open accounts online, banks have progressed to using KYC software solutions to streamline digital verification in addition to traditional processes in brick-and-mortar locations.
KYC in FinTech
The FinTech industry has experienced hyper-growth over the last decade as more consumers turn to neo-banks and new age payments over traditional banking.
These companies must implement robust KYC procedures to mitigate risks associated with digital transactions and growing threats of fraud. KYC in financial services includes verifying identities using the same measures as banks, monitoring transactions, and using advanced technologies to detect suspicious transactions.
As the new and more sophisticated fraud threats emerge, FinTech companies are turning to AI and machine learning to mitigate more advanced fraud such as deepfakes.
KYC in Crypto
One of the higher risk industries requiring KYC is cryptocurrency. Cybercriminals have taken advantage of crypto to hide source of funds and perform money laundering on a significant scale.
Due to the fact cryptocurrency has not been regulated for KYC until recently, cybercriminals have ramped their efforts and targeted the less secure systems.
Cryptocurrency has remained largely unregulated, but with the UK Government demanding a regulatory focus for a safer industry, cryptocurrency providers are turning to KYC to prepare for looming global regulation and to keep fraudsters and cyber criminals from infiltrating their systems.
A typical KYC process for crypto is similar banking and FinTech by collecting personally identifiable information (including name, address, date of birth, and government ID documents) and verifying the information against trusted data sources. Although, as the industry is susceptible to being targeted, crypto providers may employ more advanced fraud prevention tools to further mitigate risks.
Gambling KYC
In the gambling and gaming industry, KYC is at the forefront of Anti-Money Laundering (AML) and identity verification efforts. KYC not only ensures that individuals are who they claim to be, it also ensures that customers attempting to onboard are of legal age to gamble.
Gambling is another industry that has suffered frequent attacks from fraudsters and money launderers and has historically been an industry that hasn’t adapted well to more secure requirements. One of the biggest recent fines for AML failings is Crown Resorts. On 11 July 2023, the Federal Court of Australia ordered the Australian gambling giant Crown Resorts to pay an AUD 450 million (USD 300 million) fine for repeatedly violating the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CFT Act”) between 2015–2022.
In addition to KYC, gambling operators are also now expected to prevent gambling related harm by understanding the risk of players developing a gambling addiction. The most recent regulation is an update to the 2005 gambling act which requires operators to screen customers for financial vulnerability indicators with affordability checks.
KYC in the insurance industry
KYC processes in the insurance sector help in preventing fraud and ensuring the legitimacy of policyholders. Insurance companies must verify the identity of their clients, assess the risk associated with insuring them, and comply with regulatory requirements including The Consumer Duty. This includes thorough documentation and ongoing monitoring to detect any fraudulent claims or suspicious activities.
How KYC software can help different industries
As digitisation and online account opening continues to become more popular, businesses in different industries are turning to KYC software to help onboard customers aligning to evolving KYC and AML regulations, whilst also offering customers a real-time journey.
KYC software consumed through an API integration at onboarding can be a powerful ally to regulated entities and compliance teams alike. Not only can KYC software ensure that KYC, AML, and anti-fraud can be completed in tandem, but it can also give businesses the opportunity to get to revenue faster by ensuring a seamless customer journey.
How FullCircl can help
FullCircl works with 700+ businesses in regulated industries seeking more efficient KYC and compliance processes. Our global KYC software is trusted to bring regulatory adherence whilst keeping revenue generation as a priority.
Interested in hearing more on how to produce an effective KYC checklist and compliance program? Click here to talk to the team.
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