Money laundering and terrorist financing are serious threats to our financial systems and these threats are rising at an alarming rate, compromising the integrity of the financial world. Criminals have become extremely sophisticated and they can easily steal your identity and money, stressing the need to develop robust security measures to curb criminal activities. To combat the rising threats of financial crimes, various jurisdictions globally have established anti-money laundering (AML) regulations to put a stop to illicit activities. KYC onboarding is a first line of defense against criminals and it’s crucial to build this defense strongly. This blog will provide a brief knowledge of digital KYC onboarding and the essential components of the process, providing businesses with the necessary knowledge.

What is the KYC Onboarding Process?

KYC onboarding, a crucial component of AML regulations is a set of legal standards that every business must conduct before starting an engagement with new customers, ensuring a high level of security and protection. It helps businesses to understand who their customers are and what kind of risks are associated with them, offering timely mitigation of significant threats.

Each jurisdiction has its onboarding standards referring to what kind of information must be collected from customers but the essence remains the same which is truly understanding the customers. Mostly, name, date of birth, or address are collected to record the customer’s identity, and previous financial activities are also evaluated to monitor the customer’s behavior. The technological innovation has made the onboarding process and the verification is completed digitally. Digital KYC onboarding is the remote verification of a customer’s identity by validating ID documents and conducting liveness checks.

A 5-Step Process for an Efficient Customer Onboarding Process

The customer onboarding process may feel like an additional and tiresome task but it’s crucial in securing the financial world against criminal activities. By efficiently conducting customer onboarding KYC, businesses can build trust with customers and comply with AML regulations evading legal repercussions.

1. Data Collection and Verification

The very first step in the onboarding procedure is the collection of required data only, to make the process user-friendly and easily accessible for customers. Collecting extra details could be frustrating for both customers and staff, making the process time-consuming. Develop clear and transparent guidelines about data collection to educate users so that the onboarding process can be completed in less time. By employing advanced technology, businesses can validate the provided information in real time, reducing errors and expediting the process.

2. Risk Assessment

Implementing a risk-based approach helps businesses categorize each customer based on the corresponding risks, as each customer doesn’t impose the same level of risk. High-risk customers must undergo rigorous evaluation and continuous monitoring is performed to flag suspicious activities in real-time. The onboarding process for low-risk customers is an effortless task, requiring less information for verification and there is no need to regularly evaluate their activities or behavior.

3. Ongoing Monitoring and Regulatory Compliance

Businesses are well aware of the fact that KYC isn’t a one-time process, it requires continuous monitoring. Keeping an eye on customer’s activities and regularly updating information as per requirements may help businesses to comply with AML regulations and flag the signs of suspicious activities. Real-time suspicious activity (SARs) a component of AML regulations, obligates businesses to ascertain criminal activities in real-time, effectively addressing crimes before they can take place.

4. User-Friendly Approach

Customers prefer an onboarding procedure that is user-friendly and easily accessible. Digital KYC onboarding has significantly increased user convenience, allowing customers to complete their onboarding via their smartphones. Mainly, facial recognition KYC collects the user’s facial features and matches the data against a passport or driver’s license. Initially, the customer uploads the photo ID and takes a selfie, the face is matched against the ID documents for validation. Liveness checks are also performed to confirm the authenticity of the users, warding off unauthorized access and reducing the potential risks of fraudulent activities.

5. Automation & Integration

Traditional methods of customer onboarding KYC are often tiresome, making the process cumbersome for both customers and staff. The progress in technology has made the process easier and the integration of sophisticated software can efficiently automate the process. The deployment of advanced technology can expedite repetitive tasks such as data entry, document verification, and risk evaluation, saving both time and energy.

Financial services, real estate agents, high-value dealers, trading agents, virtual asset services providers (VASPs), and the iGaming industry are mandated to robust customer onboarding KYC to mitigate the risks of financial crimes. Regulated or non-regulated, every business is obligated to carry out KYC procedures before customer onboarding to streamline customer-client relationships.

Final Thoughts

The distressing rise of financial crimes and criminal activities strongly urges businesses to effectively adhere to financial regulations to preserve the integrity of the financial world. Compliance with digital KYC onboarding enables businesses to comply with regulatory standards and bypass legal penalties. Moreover, it helps to build trust in businesses, ensuring your confidential information is safe and finance is protected against criminals.