With the surge of online criminal thefts in the digital world, new ways of scamming customers have been generat. Due to this, customer experience gets affect proving to be a loss for the businesses. This is the reason it is imperative to know about the customers and their real identity so that with whom they are doing businesses can be reveal to protect companies from money laundering and financial risks from their clients.
Better to Implement Know Your Customer Regulations
Know Your Customer (also abbreviated as KYC) works on the principle of checking the true identity of its users to prevent probable fraud that can impact business operations and can harm the company’s reputation by checking the background information of its client. It works on collecting personal data and identity documents before any business transactions can be carried out.
Two Levels of Detecting Potential Financial Risks
KYC and Customer due diligence are quite similar yet different. The only difference they have is that online Know Your Customer checklists are made at an early stage of establishing business relationships, while CDD consists of an ongoing process of monitoring the clients of suspicious activities and both of them are somehow connected with the anti-money laundering (AML) program. Certainly, there are two levels of detecting potential frauds among customers which are:
- Customer Due Diligence
Developing a trustful bond with the customers enhances customer onboarding. In this regard, customer due diligence (also abbreviated as CDD) comes in great use, it helps organizations to detect potential risks and manage sophisticated crimes and nefarious activities. Not only institutions should look out for clients’ information, but they should also keep a keen look on the firms the clients are dealing with, opting out any politically exposed persons, adverse media, and sanctions.
- Enhanced Due Diligence
For a more detail and high-risk version of security checks, enhanced due diligence could be widely use. Known as EDD as well, this process detects those potential risks which could not be detect through customer due diligence. EDD can be use in those circumstances in which a politically expose person (PEPs) is detect, furthermore, information is pull out, detecting whether that person is foreign or local, the identity concerns in which whether they are link with congress or any such party and revealing their position in the political world. Decisions are made by EDD in compliance with the AML regulations for a secure and protective experience.
The Basic Regulatory Operations for CDD
In the process of Customer due diligence, the following steps should be taken in accordance which are:
- Identification of the customer: To establish secure customer onboarding, companies should assure the identities of their clients by keeping a record of their personal information consisting of their names, age, gender, address, etc. obtained from a trustworthy source.
- Third-party ownership: When a third-party individual seeks to assess an individual account on behalf of him, firms should look out for potential risk and examine the possible benefits, which can be attaine by the activities of an individual or a group of people.
- Understanding the Nature of the business relationships: While businesses eliminate the risks and thefts, they need to carefully identify the nature and purpose of the business relationships with their customers to enhance satisfactory customer onboarding.
Dealing with Challenges Through Know Your Customer Requirements in the Digital World
As the pandemic expanded in the world, it created its own set of challenges for the companies for the onboarding process to go swiftly.
- Higher level of fraud: To combat the high risk of scams, the online know your customer service has executed ways through which a company can reveal the true identity of its customers. As the face-to-face interactions have been minimiz due to the pandemic, KYC allows the options of selfie uploading for the face recognition of the clients with photos provided on the documents.
- Data Breaches: As people are working from home as well now, it creates more chances of data breaches which could harm the company in soo many ways. To reduce this, KYC carefully locates the address from which the data is being process to encounter any data breaches to happen.
- Weak onboarding processes: Many companies are yet very much relaxe in developing a know your customer checklist before any misfortune situation happens which can destruct a secure customer onboarding. Revisions and edits should be made as soon as possible to omit any potential risks of fraud.
Wrapping it Up
In a conclusion, to ensure secure customer onboarding, a combination of both customer due diligence and enhance due diligence should be used so that the high rate of online criminal frauds could be reduced. For this reason, financial institutions need to be flexible to do modifications according to the latest KYC regulations. As technology evolves in the world rapidly, the need to know your customer has also increased. In the end, it varies on the associations on how they deal with explicit criminal activities and establish standards that ensure that they are not dealing with bad customers. Hence, the more companies would know their customer’s identities properly, the more transparent bond of trust could be establish.