As the digital world expands and global connectivity grows, customer identity verification is increasingly vital to prevent fraud, especially in the fintech industry. Technology continues to advance, causing criminal activity to diversify and necessitating that all financial institutions implement Customer Identification Programs (CIP). That means Anti-Money Laundering (AML) compliance and Know Your Customer (KYC) verification are compulsory to help prevent crime.
Find out about KYC and AML, how they relate to your CIP, and how to effortlessly ensure compliance to form a reasonable understanding about the true identity of each of your clients.
Customer Identification Program (CIP)
Remember that your process to verify the identity of every new client or customer was brought about by several laws, including the U.S. Patriot Act, section 326. It requires a minimum of three steps to implement an acceptable CIP:
- The ability to identify and verify the identity of any individual that opens an account.
- Secure record keeping, ongoing.
- The ability to compare the verified identity against government lists of known criminals.
Financial institutions maintain standards that protect them from corruption, fraud, money laundering, and terrorist financing by maintaining a compliant CIP. The strength of the CIP helps banks and other organizations minimize risk, even in a digital environment where the risks are always changing and evolving.
CIP Elements: KYC Verification and AML Compliance
The CIP's two essential areas are KYC and AML compliance. Let’s take a closer look at each to understand how compliance and verification benefit financial institutions and strengthen their CIPs.
AML is an umbrella term referring to several laws that aim to prevent criminals from laundering or trying to legitimize funds that were illegally obtained. Since 9/11, compliance with AML is also used to combat terrorism financing. The United Nations estimates the annual amount of laundered money is two to five percent of the global GDP. That translates to $1.6 to $4 trillion per year. And the numbers continue on an upward trend year over year.
AML requirements vary from country to country. The U.S. Bank Secrecy Act refers to regulations in the which includes these activities:
- Implementation of risk-based policies.
- Risk assessment and monitoring, ongoing.
- Compliance training for staff.
- Several types of regularly-administered internal audits.
KYC verification refers to the process used to verify the identities of new customers. This helps institutions ensure that they are only doing business with legitimate entities by requiring credentials and verifying identification before an account is opened.
KYC includes the following:
- Proof of identity (ex: driver’s license, passport, social security card, birth certificate)
- Face recognition verification (ex: drivers license photo ID and biometric verification)
- Document verification (ex: bank statements)
Customer Due Diligence (CDD) is a KYC procedure typically included under an AML compliance program. It means that the institution has taken reasonable steps, suggested and outlined by the law, to build and maintain a risk profile about each customer. The risk profile attempts to better understand the customer or client by evaluating them based on their investment and banking activities.
Enhanced Due Diligence (EDD) is another crucial KYC procedure that falls under AML. When organizations identify high-risk clients through their risk profile, additional information is collected to determine the next steps. These next steps may entail collecting more information, such as comparing their information against global lists of politically exposed people (PEP) while trying to determine the ultimate beneficial owners (UBOs) of the funds.
KYC Verification and AML Compliance with Instnt
When using Instnt to do the heavy-lifting of customer identity verification , you’ll discover friction-free customer onboarding that’s fast, easy, trust-building and compliant. All you have to do is paste a code into your onboarding flow.
When you hand the challenge of fraud detection and management to Instnt, you alleviate the stress and hassle of customer onboarding. This decision frees up your company's time and money to manage the customer relationship and provide the best products. And that is a straight road to increased revenue and lower costs.
Interested in learning more about Digital Customer Onboarding, KYC, and AML?
Department Of The Treasury - Financial Crimes Enforcement Network; Customer Identification Programs for Certain Banks (Credit Unions, Private Banks and Trust Companies) That do not Have a Federal Functional Regulator
United Nations Office on Drugs and Crime - Money Laundering
Office of the Comptroller - U.S. Bank Secrecy Act