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The banking industry deals directly with money which makes it highly volatile for fraudulent activities. Ever since the world had to move online under the digital revolution and COVID-19 pandemic, criminal activity has increased in the banking industry.  People are using stolen IDs to surpass the system and indulge in activities such as money laundering. This has raised the need for (Know Your Business) requirements (KYC) for banks. The KYC requirement, i.e. ID verification for banks is carried out by taking the personally identifiable information of the customer. This process is carried out to ensure integrity in the banking system. In this blog, we will talk about the KYC requirements for banks in detail and their importance.

What are the Consequences of Neglecting KYC?

In the 1970s, a Bank Secrecy Act was passed as a measure to eliminate identity theft, money laundering and other financial crimes. This Act requires that banks identify their customers and record their identified information. The process of customer’s identity verification and keeping the record of their personally identifiable information is known as the process of KYC or Know Your customers. There are regulatory authorities that have come up with such requirements for money service businesses to ensure that no fraud is occurring in them.

The famous regulatory authorities are FATF, FinCEN, FINMA, Europol, Austrac, FINTRAC, and central banks of the country. The specific regulatory authority of the country is responsible for overseeing if the banks in the jurisdiction are complying with such measures. FATF is the global regulatory authority that keeps a check on the member countries and their KYC/AML system.

If the banks fail to comply with the know your customer regulations, they can face a huge amount of penalties or even a permanent closure of the businesses. According to research, the total amount of fines in the U.S, Europe, Pacific Asia cost around $26 billion in 2008-2018. These fines were imposed due to the lack of non-compliance with the know your customer regulations.

Along with these fines, the banks even have to face the loss of their good repute which means losing more customers. In 2020, a report suggested that the total amount of fines faced by the banks for lack of KYC compliance was up to 5.6 billion.

In Sweden, three banks were fined up to $336 million for not taking the proper KYC/AML measures. The US authorities penalized a bank in Israel with up to $900 million for money laundering. A famous German bank has been fined $150 million by the NYDFS for working with famous people known to be involved in money laundering and corruption.

The Need for Digital KYC Solution in Banking

So far we have discussed that it is important for banks to have a proper KYC system to ensure security measures and remove financial crime from the sector. But what we need to discuss is what would be the best approach to KYC in banking.

KYC authentication can be a costly process if carried out manually. Research suggests that it can cost up to $500 million to banks for complying with the know your customer regulations annually.

The process carried out manually not only adds to the cost but also delays the whole customer onboarding task. It takes hours to verify the identity of each and every customer before they are onboarded. The lengthy process can be frustrating and the client can altogether change their mind instead of going through such a hassle. The banks will not only end up spending more but will also lose potential customers which means business going into loss. An efficient process is required that performs the KYC requirements for banks easily to reduce the customer bounce rate.

Digital KYC Requirement for Banks

A technological solution is required to perform the KYC process swiftly. AI-powered software can be used for such a process. Not only does it verify the identity of the customer quickly, but it also does it so accurately. The digital KYC solution can now verify anyone including anyone trying to open up a bank remotely or on-premises. How this process works is that the customer has to submit a picture of their ID document along with their selfie.

The robust KYC solution extracts the information from the ID document and analyses it for its authenticity. The selfie of the person is matched against the ID document’s photo to ensure the identity of the person. The solution is trained with real data and different document types that are able to capture fake or doctored ID documents easily. This KYC solution would be the best approach to fulfil KYC requirements for banks. It can assist the banks to be free from fraudsters while remaining compliant with the regulations and have satisfied customers.

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