Since banks are financial institutions that are tasked with safeguarding people’s money and investments, they have comprehensive initiatives in place to identify and remove bad actors who attempt to exploit their services. Many banks have a know your customer (KYC) software to help ensure the reputation and integrity of their institution. This is a mandatory checking process that banks use to verify and screen the identities of their clients. The KYC software is used when clients are opening a new account, and is repeated periodically over time. This is the bank’s way of ensuring that clients are genuinely who they say they are and that their transactions don’t funnel funds to nefarious activities.
The KYC software allows banks to uncover people with nefarious intentions with ease, and there are important elements that need to be included for such a program to be effective. When in the process of selecting a KYC software, banks must ensure that these necessary components are always included:
1. Clear client acceptance policy:
When selecting a KYC program, banks have to create a comprehensive set of terms and conditions for client acceptance. These policies should also include specific descriptions of different clients, with graduated due diligence requirements based on the client category a person may work under. After all, some people are less high-risk compared to others. As an example, a working-class person already has a more defined source of income and will need to comply with a few standard requirements to open an account. On the other hand, an individual with a high net worth from several income sources will have more checks to pass to ensure their income does not have a more sinister source. The more well-defined the customer acceptance policies are, the more efficient the KYC procedures will be.
2. Enforced and advanced customer identification:
Given that a KYC program requires bank employees to be familiar with their customers, there also has to be a meticulous way that customers are identified. This is an essential part of any program like this. Moreover, the customer identification requirements have to be continually developed and enforced.
Complete customer profiles need to be created so banking employees can use it as a reference when screening potential clients. Policies also need to require more extensive due diligence from certain demographics as well. Factors that should be included for screening should include the customer’s background, country of origin, and profession as these are risk indicators.
3. Ongoing monitoring of accounts and transactions:
Even with a strong foundation, a KYC program still needs constant monitoring to maintain its efficiency. Keeping a close eye on the system allows bank employees to see and understand patterns in customer activity. Anything out of the ordinary will automatically stand out and can be addressed right away. Limits can be set across different accounts so if any kind of activity seems unusual or dubious, it can be examined right away. A deeper look may reveal a high account turnover, inconsistencies in the account balance, and other anomalies that may indicate fraud or money laundering. That way, banks can easily eliminate criminals and other suspicious people from their customer lists.
4. Effective risk management processes:
As a whole, the bank must extend its commitment to vigilant and thorough risk management throughout its KYC processes. There should be clear and specific rules in place for reporting and dealing with suspicious transactions so all personnel has a standard procedure to follow for it. This eliminates the guesswork and allows the KYC experts to make informed decisions on further courses of action. Trained employees who operate the system. One overlooked but often vital part of any KYC program is the skilled personnel who manage the system. Even with the other components in place, a bank’s KYC protocols can still fall apart if there are no employees with proper training who are operating, maintaining, and improving the system. This is especially because the financial industry is rapidly evolving into digitization with heavy regulation.
With that said, a significant amount of time and money must be placed into giving staff members the relevant training for KYC procedures. Moreover, the training must also match the specialization of the KYC personnel (compliance, front-line, customer service, new employees, and more). In addition to the introductory education, employees also need to undergo additional enrichment courses to ensure that they are equipped to handle different challenges as time goes on.
When it comes to designing and implementing a sound KYC program, the components mentioned above are non-negotiable. In addition to helping detect any illegal transactions being made by the bank’s customers, the KYC program is designed to ensure the bank’s long-term credibility. Without these elements, banks put themselves in danger of being used for money laundering, facing legal repercussions for being delinquent in calling attention to suspicious activity. Eventually, they may be regarded as an unworthy safeguard of funds, which is bad news for the organization’s long-term viability.