We all know that Know Your Customer (KYC) procedures are vital in protecting businesses from financial crimes such as money laundering, terrorist financing, and fraud. Unfortunately, not all businesses take these procedures seriously, leading to negative impacts on their operations and customers. Read this article to make sure you are not one of them!
See, without proper KYC checks, businesses expose themselves to a whole host of unwanted risks. These risks can be due to the vulnerabilities listed in the yellow box, which create openings for criminals trying to exploit a business for their gains. If they’re not careful, businesses may end up being implicated in financial crimes or facilitating these crimes without their knowledge, damaging their reputation, and leading to significant financial and legal repercussions.
On the other hand – Proper KYC checks empower organisations to better filter who they’re working with, allowing businesses to focus their efforts on serving legitimate clients and mitigating increased risk exposure.
In addition, KYC compliance also helps businesses to comply with regulatory requirements. Governments and regulatory bodies have implemented strict regulations to combat money laundering, terrorist financing, and other financial crimes. KYC checks help businesses to comply with these regulations and avoid hefty fines and penalties. What’s more, by implementing proper KYC procedures, businesses can demonstrate their commitment to compliance and build trust with their customers and stakeholders. This can lead to increased business opportunities and long-term success. In other words, it’s in your best interests to invest in good eKYC solutions, as we will explain in the this article.
Poor KYC measures mainly harm businesses by negatively impacting customer experience.
Customers expect that the businesses they work with have vetted all users of their platform, particularly those who engage in recurrent transactions. If businesses have poor KYC procedures, it can lead to long wait times or blocked accounts, generating frustration and bad press. Naturally, if customer experience falls short of expectations, it becomes more likely for them to shift their trust and loyalty to another business.
Furthermore, poor KYC standards can also result in increased fraud and security risks for businesses. Without proper identification and verification processes, it becomes easier for fraudsters to create fake accounts and engage in illegal activities on the platform. This not only puts the business at risk of financial losses but also damages its reputation and credibility in the eyes of customers. The worst case scenario is that your business gets discredited, gets attacked in newspapers or loses its certifications. None of these justify the risk in compromising on eKYC.
Last but not least, poor KYC measures can also lead to regulatory non-compliance and legal issues for businesses. Many industries, such as finance and healthcare, have strict regulations in place to ensure the safety and privacy of their customers. Failure to comply with these regulations can result in hefty fines, legal action, and damage to the business’s reputation. Therefore, it is crucial for businesses to prioritise their KYC procedures to avoid such consequences and maintain a positive customer experience.
KYC procedures don’t simply exist to protect a business’s reputation and customers, but also to help businesses to abide by national or international regulations.
Governments and regulatory bodies around the world have mandated KYC procedures to ensure that businesses are protected from illicit behaviour within their platform. Failure to comply with KYC regulations can lead to significant penalties that can range from:
And in summary, considerable “headaches” for your company and its employees. The publicity of these penalties can severely damage a business’s customer base and shareholders.
As if that’s not enough, KYC failures can also lead to legal action against a business. In some cases, businesses may face criminal charges for failing to comply with KYC regulations. This can result in even more severe penalties, including imprisonment for company executives and significant financial damages.
Therefore, it is non-negotiable for businesses to prioritise KYC procedures and ensure that they are fully compliant with all relevant regulations. By doing so, businesses can protect themselves from numerous legal, financial, and reputational risks associated with KYC failure. Sahal Verifai is here to protect you from such disasters.
Despite the critical role of KYC, many businesses fail to implement critical procedures.
Here some of the most common mistakes made by businesses in the KYC space:
Companies should have robust standard operational procedures and guidelines that cover all necessary grounds that define what suspicious activity should be flagged and escalate it to higher authorities. Deploying clear KYC instructions and guidelines can ensure that all employees follow certain protocols, which encourages uniform compliance checks.
On the other hand, strong KYC practices provide organisations with enormous benefits. Their users are confident that business is legitimate, and there exist credible measures to identify and prosecute criminal behaviour. As businesses work more confidently with their customers, customer satisfaction increases, which leads to loyal followers and an increased bottom line. Enhanced KYC processes ensure businesses focus their efforts onto generating income whilst ensuring their users practise legal and legitimate transactions. These benefits also increase customer loyalty and improve their overall experience.
At Sahal, we take strong KYC to heart and have designed a platform that secures businesses in every step of their customer journeys.
Numerous case studies indicate how poor KYC procedures led to numerous business impacts on customer engagement and operational regulations. One such example is the Belgian ING bank, who suffered a $900m regulatory penalty due to a lack of proper KYC controls. Another example is Citbank, which similarly paid a $400m fine as a form of remediation due to KYC failings. These significant repercussions affected the customer base and generated bad press for both companies, likely leading to customers switching to other competitors.
Technology advancements have given businesses new prospects to deploy effective KYC measures. AI technology can strengthen a business’s KYC controls by baring tools to detect suspicious activity, automate compliance checkers, and deliver more accurate financial crime analytics. With technology advancements and new solutions implemented, a business can run their operations efficiently while ensuring maximum security and customer satisfaction.
Businesses can employ multiple strategies to improve their KYC compliance and customer trust. For one, they can use a “layered” KYC approach that ensures that initial authentication measures catch suspicious behaviour patterns. The process must identify a baseline so that any deviation from the norm can signal potential suspicious activity. It would also help gain customers’ trust by implementing transparency measures, adequately storing data, and using third-party verification to maintain vigilance against criminal elements.
Sure, it’s another “buzz word”, but best practices exist for a reason. Some of the best practices to stay ahead and adapt to evolving KYC standards require a focus on creating a proactive culture. Compliance should not be reactive or abrupt, but rather integrated into every level of business operations. Encourage an open dialogue with clients to ensure that they understand the KYC measures in place, and provide regular training sessions to employees outlining the relevance and importance of KYC procedures.
To learn more about best practices to prevent fraud, explore our comprehensive guide written by our compliance experts.
The risk with implementing complicated, layered KYC measures is that it can slow down or confuse the customer experience. The solution to this is shaping KYC measures as a “personalised section” in the customer onboarding journey. Current trends show that personalised KYC measures tailored to customers’ online profiles generate a more seamless process and reduce customer dissatisfaction. Secondly, good customer experience also relies on a smooth, reliable and comprehensive platform for deploying eKYC. Which minimises the risk of glitches, long waiting times and ugly user interfaces.
KYC regulations continue to evolve towards stricter guidelines for businesses. In response to the Global Financial Action Task Force, many regulatory authorities are now recommending that virtual asset service providers adopt a travel rule that mandates that all relevant information about transactions be shared amongst relevant participants in the network.
Companies must be prepared for these developments and optimise their KYC and Anti-Money Laundering (AML) controls to satisfy them. Future success in business will partially depend on the adaptability of a business’s KYC compliance measures for this upward trend.
Fortunately, Sahal Verifai’s platform helps you do exactly that. Share, obtain and monetise customer data safely and without breaching your terms and conditions.
Overall, it is essential that businesses implement KYC procedures to mitigate risks and protect themselves from illicit criminal activities. Engagements with competent regulators, compliance oversight and regular internal reviews will enable businesses to be adaptable and conform to evolving regulatory requirements. Compliance with KYC procedures should be a top priority for businesses to safeguard trust, loyalty and integrity within their customer base, and avoid damage to the company reputation.
At the same time, businesses must prioritise enhancing customer experience by creating seamless experiences and prioritising personalisation. As digital transformations reshape how businesses interact with their customers and regulatory requirements continue to evolve, businesses are presented with one key choice to make: to adapt and meet those changing needs, or stay behind their competitors.
