In the world of digital currencies and blockchain, Know Your Customer (KYC) regulations are a crucial part of making sure that your business is compliant with the law. While you might think that KYC only applies to banks or other financial institutions, it can apply to any business that deals with money. This includes companies who are working with cryptocurrencies or any other type of digital asset.
What are identity verification and authentication?
Identity verification is the process of confirming the identity of a person or thing. Identity authentication is the process of confirming that an entity is who they claim to be. However, these two processes are often used interchangeably because they both use similar technology and methods; they just serve different purposes. Generally, identity verification and authentication are performed through an identity verification platform. These platforms are used to enhance security and compliance as well as customer experience when verificaying or autneticating identity.
What is KYC?
KYC is a process to identify and verify the identity of clients or customers. KYC is a requirement for financial institutions, banks, and other regulated entities. It’s also a legal requirement for all businesses that accept payments from customers in the European Union (EU). KYC helps prevent money laundering, fraud, and corruption by making sure that you only work with people who are who they say they are.
What are the risks of not knowing your customer?
Here are some of the risks that come with not knowing your customer:
Risk of fraud: You might be asked to verify a person’s identity to comply with KYC regulations, but if you do not do that due diligence, it could lead to fraud and financial loss for both parties involved.
Risk of money laundering: According to the United Nations Office on Drugs and Crime the amount of money laundered globally is estimated to be between $800 billion and $2 trillion annually—and this figure doesn’t even include indirect costs associated with drug trafficking and terrorist financing (which also rely on large sums). If businesses do not know their customers they can easily become unwitting accomplices in these crimes, which will impact their reputation as well as their bottom line.
Risk of terrorism financing: Terrorist groups often use shell companies and bank accounts set up by front companies abroad to disguise their activities; if these entities aren’t identified by financial institutions before they’re able to open accounts, then terrorists will have access to financial services that would otherwise be unavailable under KYC requirements.
The know your customer verification process
The KYC verification process is essential to establishing a business relationship. It involves gathering and verifying identity information (such as passport or driver’s license numbers) to accurately identify your customers.
To go through the KYC process, you first need to conduct risk assessment and determine if the business relationship with the client should be terminated for any reason. Then perform ongoing monitoring of transactions against normal expectations, account details, and other indicators that may indicate fraudulent activity or money laundering activities by clients. This can be done by linking all accounts held by an individual within different financial institutions into one comprehensive view so that suspicious activity across all accounts can be seen easily rather than looking at each account individually in isolation from others held by that person. This is known as aggregation.
Requirements to make KYC work
As a business, you need to make sure that your clients are who they say they are. This is called Know Your Customer (KYC). The good news is that there are now identity verification platforms that can help you do this. They offer access to a global network of identity verifiers and provide a single, secure user interfaces to manage the entire process. In addition, these platforms provide comprehensive suites of identity verification tools and robust risk management platforms.
The digital identity lifecycle and governance process
As the identity verification landscape has evolved, there have been significant changes to how companies verify their customers. This has led to a new role for compliance officers who need to understand the risks of not knowing your customer and what it means for them as a business.
For a Know Your Customer (KYC) processes to work effectively, several requirements must be met:
- The customer’s identity needs to be validated through an independent third-party source. This can include obtaining hard copies of documents such as passports or driver’s licenses from an applicant through mail or electronically by submitting scanned copies via email or other secure channels such as web portals which only allow access using two-factor authentication methods like One Time Passwords (OTP).
- Once this is completed and all information has been validated by a third-party vendor (typically via digitally signing documents with their public key), then you will have created an electronic “paper trail” that can provide proof in case something goes wrong later down the line when trying either perform another transaction between parties or even prove ownership over assets like homes or property deeds paid off loans.
Conclusion
Identity verification is a complex process, which requires the implementation of multiple technologies, including machine learning and artificial intelligence. Therefore, it’s important to choose a partner who can help you with this process.