It's no news that the banking sector is one of the most regulated industries, especially concerning KYC and AML compliance. This is because although the customer is liable for any fraudulent activities, banks also share the responsibility with individuals that transact with their business.
Know Your Customer (KYC) and Anti Money Laundering (AML) laws are designed to mandate banks to always assess risks involved in transacting with a customer. This is achieved through identity verification, to ensure such an individual is not on any prohibited lists. Overall, KYC laws help combat terrorist financing, fraud and money laundering.
Every financial product and transaction must pass KYC checks as part of the 2001 Patriot act to monitor and prevent terrorist activities.
This article discusses KYC checklist for banks in detail. Let's get down to it!
What are KYC Checklists for Banks?
KYC checklist for banks basically refers to the series of KYC requirements that banks are required to complete to meet compliance. The Patriot Act introduced these laws globally, adding enforcement and requirements to the Bank Secrecy Act of 1970. The act mandated banks to follow:
- Customer Identification Program (CIP)
- Customer Due Diligence (CCD)
CIP refers to the process that identifies and confirms the identity of customers, while CCD is the process of onboarding the customer or performing key transactions like loan applications. To complete CIP and CCD processes, the customer needs to supply relevant ID documents.
Read more on - How do banks verify Identity?
What are the KYC documents required for opening bank accounts?
Banks are required to ask customers for specific reliable documents in order to prove their identity during the account opening process. These documents include:
- Utility bills
- Government-issued Identification number
- Government-issued IDs (e.g. driver’s license, passport, voters card, etc.)
- Trust instrument
- Partnership agreement
- Certified articles of incorporation
- Government-issued business license
- Financial statements
- Financial references
- Data from a public database or consumer reporting agency
The specific documents requested may vary depending on the type of customer (e.g. business or an individual), type of account, or necessary extra security measures. Banks are also allowed to determine other specific documents as long as they can verify the data it provides. This is also referred to as corporate KYC.
What are Customer Identification Program (CIP) requirements?
This is the process that a bank undergoes to confirm the identity of a customer during onboarding and completing key transactions like loan applications. It is the most basic aspect of KYC and the very first step in satisfying AML and CTF requirements. Although banks in the past used to manually verify customers' identities, today, identity verification tools are preferred for digital identity verification. Customers do not even need to show up at the bank to complete this process.
What are Customer due Diligence Requirements (CDD)?
Customer due diligence is one of the vital aspects of KYC. Its compliance mandates banks to be able to predict the financial transactions a customer might undergo, possibly through past activities and the nature of their account. This way, the bank can easily assign risk ratings and take necessary actions early rough when there are suspicious activities.
CDD would also help banks identify customers that pose too much risk to transact with or take on as new clients.
Depending on the type of customer and intended business relationship, banks could request extra information like their occupation, source of funding, account intent, description of business operations, and more. The process cuts across B2B and B2C alike and could be done using KYC automated services.
What is the difference between KYC and Anti-Money Laundering?
The major difference between KYC and AML is the fact that AML refers to the overall framework put in place to prevent terrorist financing and illegal activities while KYC is the process that brings transparency to AML. KYC is one of the most crucial processes to achieving AML compliance.
Without a doubt, Know Your Customer (KYC) and Anti Money Laundering (AML) are similar, however, they remain very different.
Why is KYC process important?
KYC process is important because it helps banks verify the identities of customers and gather subsequent information on their habits. These data could be used to flag suspicious activities and take precautionary measures in case of a breach. KYC is especially helpful in detecting anonymous accounts often used for money laundering and terrorist financing.
Non-compliance with global KYC standards attracts fines and penalties to banks. “During the first half of 2021, 80 banks have been fined an estimated $2,732,099,008 for AML and KYC related violations” according to a report by Kyckr.com.
How much does KYC cost?
According to research conducted by Consult Hyperion in 2017, Financial institutions reportedly spend $60 million annually on KYC processes. This figure has been on a constant rise ever since, hitting $500 million in 2018.
At the moment, many businesses in the finance industry have outdated systems that make compliance expensive and create a poor customer experience. According to a survey by Thomson Reuters, 89% of corporate customers indicated that they did not have a good KYC experience.
With the right KYC automation tool, banks can drastically reduce the cost of KYC as well as decrease customer satisfaction well above average.
What are the 3 KYC Due Diligence Checklists for Banks?
KYC due diligence checklist for banks can be summed up into the following:
1. Customer Identification Program (CIP):
Customer identification program is mandatory for banks to prevent terrorism funding and money laundering. It involves the bank verifying the identity of the customer through legally backed IDs.
2. Customer Due Diligence (CDD):
This simply refers to the bank adequately assessing the risk that surrounds transacting with a client and using data from CIP to take appropriate actions to mitigate them.
3. Consistent Monitoring:
This is the last step of the KYC checklist. It involves continuous risk assessment and monitoring of customer accounts to fish out unusually suspicious activities. Consistent monitoring is an ongoing process.
Achieving KYC Checklist for Banks Through Automation
YV OS is Youverify’s flagship product that allows businesses to perform digital KYC in a matter of seconds.
Here is a video description of how it works:
You can now onboard customers and complete KYC using just their mobile phone numbers. Keep in mind that it has to be the phone number linked to their bank account and NIN. By collecting their phone numbers, our “Advanced Search” can help you retrieve other relevant information like their NIN, BVN and full data.
The implication is that businesses and organisations can now onboard customers with just their phone numbers and complete KYC with full compliance. This greatly transcends the current use of customers' phone numbers for only user authentication like OTP.
Advanced Search is available on our flagship product, YV OS, and only available to customers in compliance with Nigeria Data Protection Regulation (NDPR).