Economic crime is a significant threat, costing the UK an estimated £8.4 billion every year. As fraud, money, laundering, and financial crime continue to rise, businesses need to take proactive steps to verify customer identities and prevent illicit activities. This is where Know Your Customer (KYC) plays a key role.
So, what is KYC and why is it important?
In short, KYC is a regulatory process which requires businesses to verify the identity of their clients, assess potential risks, and monitor transactions to detect suspicious behaviour.
Though traditionally associated with banks and financial institutions, KYC’s importance extends beyond the financial sector.
Any organisation that engages in high-value transactions, handles sensitive data, or interacts with politically exposed persons (PEPs) must follow KYC protocols.
Implementing robust identity verification solutions helps businesses meet regulatory requirements, along with safeguarding their reputation.
We’ll explore more about what KYC entails below, including why it is essential, and how businesses can implement it to maintain compliance.
Why Is KYC Verification Necessary?
With cyber threats on the rise, organisations need to establish stringent verification processes to prevent illicit activities, including money laundering, terrorist financing, and corruption.
For instance, the National Crime Agency estimates that the amount of money laundered in the UK is between £36 billion and £90 billion, a staggering figure which highlights the scale of financial crime within the nation. Stringent KYC measures are essential to protect the financial system and prevent illicit activities from harming the UK’s economy.
KYC procedures help organisations confirm the true identity of their customers, ensuring that they are not engaging in fraudulent or criminal activities. This prevents these businesses from forming relationships with individuals linked to financial crimes.
Compliance with KYC regulations is mandatory for businesses operating in highly regulated industries, including banking, finance, and e-commerce. KYC also helps foster a safer business environment by protecting companies from reputational and financial damage.
This reassures customers that they are engaging with legitimate, secure organisations, reinforcing trust in financial transactions.
A well-structured KYC process helps organisations:
- Verify that customers are who they claim to be.
- Ensure applicants meet eligibility criteria for services.
- Detect and respond to suspicious activities promptly.
- Avoid regulatory penalties by maintaining compliance.
- Protect systems from fraud, including money laundering.
KYC requirements vary based on industry and location, but their core goal remains the same, to improve trust and security.
The KYC Process: Key Steps
A KYC process is essential to maintain compliance across industries. This process typically involves three main components: Identity Verification, Due Diligence, and Ongoing Monitoring.
1. Identity Verification
The first step in the KYC process is identity verification, which occurs during customer onboarding.
Individuals are required to submit documents that confirm their identity, such as a passport, driver’s license, or utility bills to verify their address. Modern organisations increasingly use biometric methods like facial recognition or fingerprints, which allow for rapid and reliable identity confirmation.
Examples of KYC Identity verification techniques include:
Document Verification: Businesses check the authenticity of ID documents (passports, driver’s licenses) by checking security features and expiration dates. Technologies like computer vision and Optical Character Recognition help automate this process.
Biometric Verification: Biometric data, such as facial recognition, iris scans, or fingerprints add another security layer by matching physical traits to official records, preventing fraud and impersonation.
Database Checks: KYC verification cross-references customer data with databases like criminal records, sanction lists, and government watchlists to identify potential risks.
2. Due Diligence
Due diligence takes place once identity has been verified. This stage helps businesses assess potential risks associated with a customer. Customer Due Diligence (CDD) ensures that all provided documents are legitimate and that the customer does not pose any risks.
If a customer is identified as a higher risk (such as a Politically Exposed Person, or someone from a high-risk country), Enhanced Due Diligence is conducted, involving comprehensive checks and constant monitoring.
3. Ongoing Monitoring
The final stage in the KYC process is ongoing monitoring. Even after a customer’s identity is verified, businesses must continuously monitor their transactions to spot any unusual activity or signs of fraud.
This ensures that the customer’s information remains up-to-date and that any emerging risks are identified in real time.
How Can Credas Help With KYC Checks?
Credas offers a streamlined, automated solution for KYC checks, helping businesses accelerate their customer onboarding process while maintaining strict compliance.
Our software supports a wide range of identity profiles and meets the requirements of the Home Office’s Right to Work and Right to Rent schemes.
Whether you’re onboarding employees, verifying tenant identities, or taking on new customers, Credas’ modern technology helps to perform real-time identity verification and prevent fraudulent activity.
- Biometric ID Verification: Credas uses biometric ID checks, including facial recognition, to ensure the identity of customers in seconds. This technology helps businesses verify that the person on the ID document matches the person in front of the camera, preventing impersonation and fraud.
- Passiveness Liveness Detection: Credas uses passive liveness detection to confirm that an individual is physically present during the verification process. This technology improves outcome accuracy by ensuring that they are not using a photo or video of someone else to bypass security.
- Digital Address Verification: Rather than relying on traditional methods like utility bills, Credas digitally verifies addresses to confirm a customer’s residential or business address. This involves checking authoritative sources like government databases and credit bureaus, maintaining accuracy and efficiency.
- Company/Director Searches: Credas allows businesses to perform searches on companies and their directors, providing insight into the background of potential business clients. This assesses any risks associated with business relationships and verifies the legitimacy of companies.
Our advanced features make Credas a powerful tool for businesses looking to conduct thorough KYC checks, ensuring compliance with regulatory standards.
How Can We Help
To sum up, what is KYC, and why is it important?
Essentially, KYC helps businesses verify the identity of their customers, assess potential risks, and ensure they are not involved in fraudulent or criminal activities.
A KYC process is important for protecting your business from financial crime and maintaining compliance with regulatory standards.
At Credas, we make KYC checks seamless and efficient. Our advanced technology combines features like biometric ID verification, document checks, and real-time data sourcing to help organisations quickly verify customer identities.
Contact us today for a tailored demonstration of our industry-leading software.
