Achieving Standardization in KYC (Know Your Customer) Compliance

What is KYC?

KYC (Knowing Your Customer) is the process that is designed to identify the clients of a business and evaluating their profiles for the compatibility to prevent any illegal transactions. KYC is commonly used in bank regulations for financial crimes and especially in anti-money laundering (AML) regulations. So, the main objective of KYC guidelines can be summarized as preventing criminal financial activities as money laundering to go unnoticed by banks.

There are four main steps that are used in KYC policy implementation:

  1. Customer Acceptance Policy
  2. Customer Identification Procedures
  3. Monitoring of Transactions
  4. Risk management

The strict regulations and high penalties lead the financial institutions to give special attention to KYC compliances. It prevents the financial crimes thanks to its ability to identify risky and suspicious situations; however, it is also very hard to achieve a compliance with KYC because the costs are very high (up to $500 million each year) and the process itself takes too long.

Why is there a need for standardization?

Thanks to the digitalization in transactions and the huge raise in the amounts of money transferred, the KYC procedures need more detailed and intelligent systems which in turn means more complexity and higher costs. The regulations are making it even more complicated because they are open to interpretation and they are assessed by different jurisdictions, lacking unity.

To be able to achieve a more standardized and universal approach to KYC compliance, SWIFT and other important industry players take action. Also banks themselves are very supportive to build a standardized KYC process because their administrative burden and regulatory penalty costs trying to create a compliance increase rapidly and enormously.

So, we can say that the standardization of KYC has two main points:

  • Standardization of input: all the data collected by the banks should be collected in one system and be shared with other banks.
  • Standardization of process: all the banks using the system must process the data they have in a same way/format.

Since KYC standardization is a topic that concerns the whole industry, it was logical to create a unifying system by adding as many industry stakeholders as possible into the picture to fully grasp and address the KYC-driven challenges.

With Fineksus solutions, the aimed standardization started to develop and is getting better every day by creating a faster, easier and more credible system for KYC compliance.

What are the challenges?

Unfortunately, there are challenges to achieve the standardized approach to KYC compliance which can be summarized as:

  • Incoherency among regulations: The fact that there is an inconsistency among regulatory requirements about what the KYC compliance involves exactly automatically beclouds the process to act globally.
  • Rules open to interpretation: The current KYC regulations are very open to different interpretation which causes fragmentation in application than harmonization. The regulations basically say that without taking “how to” into consideration, banks should do their bests to collect data about the banking behaviours, businesses and general activities of their clients. As a result, banks take these regulations and adopt them in different ways based on their own mode of operation.
  • How much data is enough?: Due to the different positions of compliance teams and bank managers who constantly meet their clients face to face, there are inconsistencies about how much data is necessary for a standardized KYC compliance. For instance, while the compliance teams are more eager to collect all relevant data for the sake of the organization, managers can find some questions excessive.
  • What about tomorrow?: Future-proofing is key for the banks that are completely and correctly compliant with the KYC rules today.

What are the possible solutions?

For a holistic and complete KYC standardization, the system also needs to achieve a consistency both in data and in structure. We offer a standardized information which is presented in a single format and therefore can easily be compared with other data answers this need.

Fineksus positions itself as a business partner and developed some tools like PayGate Inspector, PayGate Analyzer and KYC to create an integrated approach and increase the operational efficiency for the banks that use FINEKSUS tools to manage the risks effectively.  With KYC solutions you can:

– Identify and verify customers.

– Screen your customers before onboarding them.

– Integrate with PayGate Inspector to scan customer against Sanctions and PEP.

– Risk calculation based on dynamically defined rules of risk categories.

– Regularly calculate the risk of customers.

– Able to add advisory opinion to change the score of the customer.

– Dynamic web service integration for customer onboarding.

Fineksus consultants would be pleased to help if you have further questions and a need for financial technologies. Contact Fineksus to learn more about the solutions.

Juyka Akar, Marketing and Communication Manager

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