Know Your Customer (KYC)

Know Your Customer (KYC)

What is Know Your Customer (KYC)?

Know Your Customer (KYC) is a process by verifying the identities of customers. It should be applied before or during onboarding new customers. By implementing the Know Your Customer procedures, banks, FinTechs and other FIs aim to prevent risky situations and ensure compliance. By conducting Know Your Customer (KYC) procedures, banks and other FIs ensure that they onboard the legitimate customers with a detailed Customer Due Diligence CDD approach.

Know Your Customer is a compulsory process in order to verify the identity of the customers. In other words, the banks have to verify that their customers are the same person who was claimed. In case of falling short of the minimum requirements for Know Your Customer (KYC) procedures, banks may reject to open an account for the customers.

Why is Know Your Customer (KYC) Process Important?

Know Your Customer procedures are important because they include many steps that ensure the customer’s real identity and evaluate the risks. Know Your Customer (KYC) procedures help to prevent money laundering and to combat terrorism financing.  They also help to prevent corruption. As Know Your Customer (KYC) includes identity card verification, face identification and biometric verification processes, it facilitates the works of the banks and FinTechs. And these FIs are obliged to implement Know Your Customer (KYC) procedures to each new account opening during client onboarding.

Why is Customer Onboarding Important for Banks and FinTechs?

Customer onboarding is important as it ensures that both banks or FinTechs and the customer are on mutual trust. While the Customer onboarding system reduces the risk of banks in the long term and provides confidence, customers can be onboarded in the short term. With this effective process management, the bank grows more firmly and maximizes customer satisfaction. For these reason; customer onboarding system, which increases the trust between the bank and the customer, has a very important place in the financial industry.

Know Your Customer (KYC) Documents

Checks for Know Your Customer (KYC) are made through a legal and reliable document, data or source of information. Every customer is required to submit personal information to prove their identity and their legal address during the onboarding process.  On the other hand, when corporate customers open an account, it is necessary for corporates to provide Trade Registry number, Tax number, Tax Compliance Declaration, Bank Statement and identity verification of the board members/shareholders.

Components of Know Your Customer (KYC) Program

An effective Know Your Customer program includes the following steps:

  • Customer Identification Process (CIP). Customer Identification Process consists of collecting and verifying client information through national identity card, passport. It is the primary step of Know Your Customer (KYC) process.
  • Customer Due Diligence (CDD). It consists of the information which is acquired from all the customers, through checking the Sanctions and Politically Exposed Persons (PEPs) Lists.
  • Enhanced Due Diligence (EDD). In this process, the aim is to obtain more comprehensive information about the high–risk customers in order to prevent the financial crimes.
  • Ongoing Monitoring. This is kind of a continuation of the due diligence processes. While due diligence processes are implemented during the first stage, the process should follow with Ongoing Monitoring which ensures continuity to analyze the transactions and prevent risks.