Before a transaction can be made and a deal can be struck, it is crucial to make sure that the client you’re working with is not the wrong person. KYC (Knowing Your Customer) is a term that refers to the process of verifying the identity of clients, and assessing any potential risks or ill intentions they may carry into the business relationship. As such, in banks and many companies, KYC has become a common practice to ensure that cases of fraud, money laundering, and bribery are mitigated. Read on to know more about KYC and its importance during the holidays.
How KYC Started
The history of KYC as a practice in the U.S. goes back to the days of the Vietnam War. In a bid to crackdown on the drug trade, the Nixon administration passed the Bank Secrecy Act of 1970 (BSA) – a set of regulations that made it more difficult to move illegal money in and out of the country. It was this legislation that helped build the foundation of a formalized KYC and AML system, as part of the 2001 USA Patriot Act. It established a minimal baseline of KYC and AML rules mandatory for all US financial institutions, and from here, KYC quickly became a standardized practice in the rest of the world.
The Importance of KYC during the Holidays
KYC procedures are especially important during periods of high transaction traffic, such as during the holiday season. This is when criminal activity is likely to be at its highest. According to research, nearly 100,000+ lookalike domains are lurking on the internet, tricking customers into thinking they are legitimate websites of brands.
The first step to fighting fraud is to know who you are up against. Criminals prepare for peak holiday seasons just as much as businesses and consumers do. KYC adds an added layer of protection against the risk of financial fraud and scams and discourages illegal behavior by robbing would-be criminals of their anonymity. In 2014 alone, more than 1.7 million cases of suspicious activity were detected and filed with the US Financial Crimes Enforcement Network.
KYC best practices such as Customer Identification Program (CIP), Basic Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) are helping financial institutions identify fraudulent activity and protect their clients from costly damages With KYC implementation, financial institutions are in better position to keep their customer’s account safe from identity theft and timely alert them when the transaction activity deviates from the pattern of the customer’s age demographics, location, and past activities.
Shortly, technological advances such as automation, artificial intelligence and natural language processing (NPL) will allow financial institutes to better comply with KYC standards and ensure quicker detection of transaction anomalies, especially during periods of high traffic such as during holidays. Work With Us!
APN Consulting can help businesses and financial institutions overcome issues with KYC and AML compliance by connecting them with the best talents of the industry. For more information, visit the AML compliance section and if you have any questions, contact us directly or email us at email@example.com.