Mar 9, 2020
What is KYC (Know Your Customer) and how it affects financial sector
KYC (Know Your Customer) related practices are especially relevant in the financial and banking industries. In this article, you will discover why, its relationship with fraud, the problems it has faced and how it is evolving.
What does KYC (Know Your Customer) mean?
KYC or, by its acronym, Know Your Customer is the practice carried out by companies to verify the identity of their clients in compliance with legal requirements and current laws and regulations.
The extensive use of new technologies and the internet makes it necessary to define standards that help fight online fraud. KYC procedure reacts to a legal and global imperative by financial institutions and companies.
How does Know Your Customer process work?
KYC is the process of identification and verification of the identity of a client in which a series of controls are applied to avoid having commercial relations with people related to terrorism, corruption or money laundering, among others.
The KYC process consists in verifying that the client is actually who he says he is and giving him access to the services or products he needs. This verification is carried out through different methods, although not all comply with legal requirements.
Discover in this article which solutions do not comply with current regulations.
The process takes place in such a way that the user who wants to become client of a company demonstrates with legal and binding evidence his identity. For this, methods such as Video IDentification by streaming video and videoconferencing are used, in which the user shows and validates his identity documents, the authenticity of them, and their face, in addition to other biometric tests and security checks.
Know Your Customer process can be carried out both remotely online and in-person at a commercial office or store. When it is done remotely and online, or the process has been digitized, we talk about eKYC process.
Learn in-detail how Know Your Customer has evolved towards digitalization in this article.
What is the meaning of KYC in banking?
Banking and financial industries are some of the most complex sectors in terms of customer relations. Banks and financial institutions constantly face a number of risks in relation to money laundering and terrorism financing.
The KYC banking process is no different than the same one in other industries, but high-security standards required by legislation are different from those required in other sectors.
Video-streaming is becoming the global standard for identifications within the financial sector and it is being included and standardized by regulations and law. Client onboarding has changed from a long, expensive, bureaucratic process to an optimized, more secure and quick process. 3 weeks have turned into 3 minutes with the highest security standards from any electronic camera device.
In this guide, you can get more information about video-streaming for KYC processes.
KYC regulations in the world
The process requires the financial sector to adhere to its regulations worldwide, which implies that identification with selfies or images is not valid due to its low range of technical security, the weakness of electronic evidence and the lack of its integrity.
Therefore, the level of security provided by these types of solutions is low, far from the legally required security standards for formal customer identification according to the most demanding regulations in this area.
European KYC regulation
AML5 (or 5AMLD) together with eIDAS define the regulatory framework in the financial and banking sectors in Europe and introduce, for the first time in history, fully secure digital identification methods so that customers can interact with their bank, insurance agencies, administration, etc completely remotely.
This means that companies can acquire customers in any country in Europe, within an open and homogeneous market of 508 million people, with just one click thanks to VideoID.
Learn about these regulations by downloading this guide on the new regulatory scenario.
Mexican Know Your Customer Regulation
Regulatory KYC compliance is extensible to the whole world, and therefore to Mexico. CNBV has set standards with the Financial Technology Institutions Law. Also, the Credit Institutions Law enable remote and online Video IDentification in the country.
Likewise in Europe, selfie-based or static images solutions are also not supported in Mexican standards.
How has KYC been improved?
Thanks to the most advanced artificial intelligence technologies, onboarding processes have been totally improved and digitized, avoiding any type of friction and difficulty for the user to access the remote contracting of products and services in a totally secure way not only in banking but in all industries.
Asynchronous Video IDentification in a matter of seconds and from any device and through any channel is now possible. Complying with the most demanding global regulation (AML5, eIDAS), acquiring a customer has never been easier.
There is a lot of noise in the market around the different solutions available for digital identification and existing KYC solutions.
Download this simple guide with all the details to understand this new scenario and take advantage of it.