Know Your Customer (KYC) is the process of verifying your customer’s identity, usually using compliance solutions and screening software. The goal is to identify the clients that are most at risk of financial crime. Verifying the identity of someone you are doing business with is the purpose of KYC remediation. For the sake of protecting the company, it is crucial to gain sufficient information on clients to ensure they are not partaking in money laundering or other illegal activity.
KYC stands for Know Your Customer.
It is a process implemented by businesses and financial institutions to verify and identify their customers’ identities and assess the risks associated with their business relationships. KYC procedures are typically used to prevent money laundering, fraud, and other illegal activities.
The KYC process involves collecting and verifying certain information about customers, such as their full name, address, date of birth, and government-issued identification documents. This information is used to establish the customer’s identity and ensure compliance with applicable laws and regulations. KYC requirements vary across jurisdictions and industries, but the overall objective is to enhance transparency and protect bus
What does KYC remediation entail?
KYC remediation is the process of cleaning and updating your client’s data to ensure compliance with the latest regulations. In today’s ever-changing business environment, your customer today may no longer be the customer you originally onboarded. For this reason, delivering efficient KYC remediation is critical to your business success.
Each customer’s assigned risk must continue to reflect the appropriate risk rating. The frequency of periodic reviews on your data will be reflected in your company’s approach and risk assessment, but should generally fall within a 6 – 36-month cycle depending on the high, medium or low flag you allocate. An efficient KYC remediation process can significantly reduce your business risk whilst also creating an opportunity for you to better understand who your customers are and how best you can further serve them.
Strict regulations are in place and financial institutions have a duty to report any suspicious activity and help to fight the war against money laundering. For companies to do this, they must implement KYC remediation. Understanding continued risk exposure and how it can evolve over time is vital when it comes to remediation. Businesses need to be aware of the impact of constant regulation changes and how to avoid penalties.
Financial institutions must also keep records of all clients updated, flagging those that pose an elevated risk or have made suspicious transactions. Any behaviour changes must also be recorded. This requirement for KYC remediation aids the continuous tracking and prosecution of financial criminals, aiming to minimise their effect.
Inaccurate or out-of-date personal information is an offence under GDPR and poses regulatory risks of fines. This isn’t always easy to manage with legacy or manual systems and a lack of direction from regulators. A risk-based approach will, however, demonstrate an understanding of risk exposure and ensure your business can adopt a ‘Business As Usual’ approach. Deploying an effective remediation solution will reduce risk, manage costs and ensure regulatory compliance, through configurable automation.
It’s important to go beyond Knowing Your Customer and implement organised and straightforward information and risk assessments about them. This is pivotal in protecting your business against money laundering, corruption or terrorist financing. The sheer volume and complexity of client data that needs to be updated, means remediation projects are often resource-intensive, manual and costly.
By using KYC information that firms need to hold, and which must be monitored for any change in status or abnormal behaviour, data points can be flagged as key risk records to sit against a company’s pre-defined risk appetite. Automating KYC remediation enables businesses to follow a risk-based approach to remediation and data collection processes ensuring that risks of financial crime posed by a customer are understood and mitigated.
Last updated: Monday 5th June 2023