As the global economy is expanding in the world at an increasing rate, this has given a rise to fraudsters executing their criminalities in the financial world with new and advanced techniques. Faking identity, stealing users’ information, misusing someone else’s credentials, and much more tactics are being used by scammers worldwide to perform identity theft variations. This can exploit the customer experience by lowering their interest levels which can further lead the businesses towards losing customers. To resolve this issue, the customer due diligence program of KYC identity verification can come in handy to detect fraudsters and eliminate them in real-time. This will allow the companies to know about the true identity of the users before onboarding them to avoid any risk of money laundering and corruption.
Protecting Banks with Due Diligence Financial Services
While opening an account online or performing transactions, banking authorities need to configure and check who their prospective clients are by performing some background research on them. This will cause them to develop a trustful relationship with their customers. Due Diligence financial services will allow the companies to establish better financial and reputational terms in the global market. All the stakeholders, vendors, money-lenders are checked through before onboarding them which will allow the smooth running of the firm without any harm. The chance of regulatory fines and hefty lawsuits will decrease consequently.
Variations of Customer Due Diligence
With the unique feature of customer due diligence, banks can verify a customer before onboarding them by checking their information regarding name, location, age, etc. A bank might check a person’s passport to check their authenticity before allowing them to deposit money. This client due diligence for banks are further categorized into two categories:
Simplified Due Diligence – Low-Risk of Money Laundering
Not every individual needs to be tested under standard KYC due diligence policies. Individuals with reliable sources of funds can be onboarded by checking them through a simplified due diligence program (also known as SDD). It doesn’t skip the general protocol of CDD but it sets a custom guideline through which customers are classified and their time for verification is made quick and easy. The customers who dealt with the process of SDD are ranked low as they possess less risk of money laundering-related activities.
Enhanced Due Diligence – High-Risk of Money Laundering
The process of EDD in banking posses to deal with high-risk individuals such as politically exposed persons (PEPs), chief of staff, etc. Individuals who perform high amounts of transactions are treated with enhanced due diligence to pull out more details about the person about their wealth and source of income. The final decisions are made after verifying an entity and checking it against AML regulations.
The Vigilant Steps of Performing KYC Due Diligence
Identify a customer – verifying an individual
The initial process of customer due diligence requires the clients to provide basic informational documents consisting of their data. Document verification service is also used for this purpose. The required set of documents can vary across jurisdictions but mostly the following information is used as a baseline:
- Full Name of the Individual – Can be obtained through an ID card
- The Residential Address of the Individual – can be acquired through utility bills, housing rental documents
- Government-issued documents – such as driving license, passport, etc.
- Tax Number
Identify a customer – verifying a company
To expand a business, it had to formulate relationships with other businesses. But before doing this, it needs to acquire a set of information through which any suspicious company with a fatal background can be eliminated easily. Those collections of information can range differently depending upon various administrations around the world but a common guideline is:
- The name of the company
- The number of registration
- The address of the company and its head offices
- Contact Details
Choosing the Right Level of Due Diligence
The businesses should rightfully decide which customer needs to deal under which due diligence program upon acquiring their information. If they are associated with the government, then the company can onboard that customer through enhanced due diligence. No matter what, all clients need to be under KYC compliance to ensure secure customer onboarding.
Even after the client’s identity has been checked thoroughly, companies need to do constant monitoring of them to remove any future risks. It might happen that a customer develops a relationship with a third-party owner who is involved in terrorist funding, this can pose a risk to the already onboarded individual as well. This is the reason for an ongoing customer due diligence program.
Wrapping it Up
Criminals are surging everywhere and especially in those areas which are involving money. Financial institutions need to imply proper customer due diligence in their companies to protect themselves from any financial or reputational fraud. Similarly, the more the firms get to know about their customer, the more they will be able to trust them. Hence, e-KYC solutions are the need of today for a secure customer onboarding experience.