KYC in Compliance

Why KYC matters in compliance?

What is KYC?

It is one of the most important responsibilities of the banks to make sure that the identity of their customers is genuine, namely they are who they claim to be. So, KYC (Know Your Customer) is a compulsory process for the banks when opening a new account or on a regular basis used for identification and verification of the client’s identity. If a customer fails in meeting the minimum KYC requirements, banks will have to right to refuse to open the account or to terminate the business relationship with that customer.

KYC holds its critical place in today’s financial world because it serves as a crucial weapon in the war against financial crimes and money laundering as the identification of customers is the initial step for each process.

With the tremendously increasing pace of digitalization, it is becoming harder and harder to control the financial payment systems. Occasionally, the regulations are evolving and becoming more challenging to be able to ensure a more secure financial environment. KYC is taken as one of the key elements to prevent financial crimes and is actively affecting the scope of the regulations.

Regulation Requirements in terms of Compliance

The KYC (Know Your Customer) procedures are aimed to help prevent and detect illegal activities like money laundering or financing of terrorism via assessment and monitoring the risks.

Banks and other Financial Institutions have to apply the KYC procedures by following and complying with KYC regulations. It is solely in their responsibility to abide by the KYC compliance and there are heavy penalties applied in case of a failure in the compliance.

The regulatory precautions are underlining the importance of knowing the customer and mostly focusing on the AML (Anti-Money Laundering), transparency and personal data protection.

In the 4th and 5th Anti-Money Laundering Directive, it is highlighted that a more detailed identity checks and a more improved understanding of customers are crucial to minimize the risk. Also, rigid customer due diligence, better control on customer identity and sharing data with central administrations are other requirements that are added.

According to Payments Services Directive, in order to prevent the abuse of digital financial tools and the fraud, it is necessary to innovate banking systems to become more customer-centric.

The transparency is stated as the primary need for the financial investment operations in the updated Markets in Financial Instruments Directive (MiFID II).

Finally, as a result of aggressive digitalization and breaches in personal data rights with marketing purposes, The General Data Protection Regulation (GDPR) was brought into force with regulations to protect the personal data.

Benefits of KYC (Know Your Customer) beyond Compliance

In addition to the compliance-related necessities, with the transformation to an intelligent system, the KYC offers different benefits to the financial businesses.

  • Smoother onboarding process: With the enhanced ID verification, the onboarding process of the customers becomes smoother. Especially with the help of a supporting digital system, the banks and financial institutions can easily skip the frustrating part of the onboarding system.
  • Operational efficiency: When an automated KYC system is used, the operational burden of KYC procedures lessens dramatically. With such a system, large volumes of data can be analyzed and processed in a shorter period of time and with higher accuracy.
  • Minimize risks: Using an automated system for KYC procedures is also helpful in terms of minimizing the risks related to human error. Also, it is possible to configure the KYC-based needs of a business to the system, so the risk for meeting the differing and ever-changing regulatory requirements will be mitigated.

How to apply KYC in your banking system?

Fineksus PayGate KYC

Most of the time, financial institutions have difficulty in dealing with the client onboarding processes by themselves. Since customers and the personal information are at the center of all the business procedures, transparency and safety are at utmost importance especially for the financial institutions to be able to detect any kind of suspicious activity. If they fail at the process of KYC (Know Your Customer), they may risk their reputation, be included in a blacklist or be imposed with penalties.

PayGate KYC of Fineksus assists institutions in estimating the potential risks and therefore preventing them to get involved in any kind of illegal financial activities (like money laundering) by checking customer information and activity, as well as the blacklists.

The templates provided by PayGate KYC considers four main policies while they collect customer information and calculate the risk accordingly which are customer acceptance policy, identification procedure, activity monitoring, and risk management. At the risk management side, our KYC tool covers customer risk (age, gender, etc.), product and service risk (credits, funds, etc.), channel risk and country risk.

Eventually, the KYC (Know Your Customer) tool evaluates the total risk score of the customer by looking at these factors. So, this risk score can be checked by anyone who is using this tool when opening a new account.

How can we help with integrated compliance package?

Fineksus, by offering tools to direct compliance challenges and to achieve better operational efficiency at the same time, can create an integrated solution to manage the risks related to the KYC at the top level.

With PayGate 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.

– Calculate risk 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.

– Expiry date notification for KYC documents


As the KYC procedures are striving to prevent institutions from being abused by money laundering or other financial crime activities, they are highly beneficial in minimizing the risks of fraud thanks to the possibility of detecting any suspicious factors in advance at the level of client-business relationship.

Therefore, the regulatory requisites are rigorous, challenging and compulsory for the financial institutions. With the support of digital automated systems, it has become easier for financial institutions to take precautions and get into action in case of a risk related to KYC compliance.

If you have further questions about KYC (Know Your Customer) and Compliance you can contact us. We would be delighted to share our expertise and answer any of your further concerns.

Tuncay Coruh, Product Manager