Meeting KYC RequirementsPrevention of money laundering has always been a priority for federal regulators, and over the past two decades, the focus has been centered on keeping cash out of the hands of potential terrorists. The Know Your Customer (KYC) framework was originally developed to deter financial crimes, and it is still one of the most effective tools in use today. However, the digital revolution has made KYC requirements to meet. Customers expect the convenience of conducting business online, but the anonymity of web-based transactions can make meeting KYC parameters difficult.

The Basics of Know Your Customer (KYC)

At its core, Know Your Customer was created to ensure that any business that handles financial transactions has validated that the clients making those transactions are who they say they are. This includes organizations that process online credit card payments and digital ACH transactions. The regulations lay out specific requirements for validating clients’ identities, and each client must be screened for a record of fraudulent activity.

During the screening process, the business must also confirm that funds are not being sent or received from prohibited countries, individuals, or organizations. These searches can be automated if the right technology is implemented, but this doesn’t guarantee compliance with all components of the Know Your Customer regulations.

The Challenges of Implementing a KYC Solution

When accounts were opened in person and payments made face-to-face, checking identification wasn’t very difficult. Digital financial transactions mean new challenges when it comes to KYC:

  • Quality of Collected Data – Technology makes it fast and easy to collect information, but processing, validating, and storing large quantities of data can be a problem. To meet KYC requirements, organizations must invest in high-quality solutions for managing information and ensuring its accuracy.
  • Process Flow – Delays in processing the information submitted by clients can be costly. Operational inefficiencies impact the client experience, and they take staff members away from more value-added activities.
  • Customer Experience – Clients usually choose to conduct business online, because it is more convenient than making an in-person appointment. However, in an effort to meet KYC requirements, organizations may request that hard-copy documentation is produced or uploaded to a data management system. Repeated requests for more documentation and additional data leads to a poor customer experience during the on-boarding process, which can eventually risk the entire relationship.

Unfortunately, taking shortcuts with KYC is simply not an option. Ineffective processes put the entire organization at risk of significant fines and additional legal troubles. For example, non-compliance has resulted in organizations and individuals being charged with complicity in criminal activities.

Best Practices for Meeting KYC Requirements in a Digital World

Creating an efficient and effective KYC process requires integration of solutions company-wide. Generally, these processes begin with specialized software that connects with all of an organization’s data-gathering systems to prevent duplicate requests to clients. Information must be stored and archived in a manner that it is readily available so that clients who wish to deepen their business relationships aren’t tasked with repeating the entire onboarding process.

Many organizations have concluded that keeping KYC in-house carries far too much risk. Instead, they have elected to outsource KYC-related activities to third-party vendors that specialize in managing and validating client data according to KYC regulations. Companies like Lyons Commercial Data have developed unique software technology that conducts exhaustive searches of client onboarding data quickly and efficiently.