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KYC Procedures: Protect Businesses from Financial Fraud in the Digital Era

by Uneeb Khan

Financial crimes such as corruption, terrorism financing, and human trafficking have increased as technology has advanced. Fraudsters are stealing people’s identities and setting up bogus accounts in banks using sophisticated cyber assaults. Customers lose billions of dollars each year because of such crimes.

The company must be aware of its customers’ transactional activities to prevent these scams. Know Your Customer, or KYC procedures are the regulations by which firms check the identity of their customers and evaluate the potential risk of fraud. KYC requirements aid firms in verifying consumers’ identities, assessing their financial behaviors, and analyzing their risk profiles. This could help prevent terrorist funding, money laundering, and other illicit financial crimes.

The Impact of KYC Procedures on Various Businesses

The financial sector is characterized by fierce competition for market share among businesses. To attract new customers, significant resources are invested in marketing and promotion. On the other hand, the measures built into the KYC procedures have been criticized for acting against existing interests and activities. These laws require organizations to intervene in at least two scenarios when they risk alienating clients or incurring additional expenses.

The Role of KYC Procedures in Business Connections

Financial institutions must adhere to KYC procedures when dealing with customers to open and maintain accounts or when conducting any type of financial transaction. Prior to the implementation of the rules, the intensity of financial crime was so high that corporations lost billions of dollars. Following enormous losses, the KYC/AML regulations were initially adopted in 1970 under the Bank Secrecy Act. It was first used to track the flow of black money into the U.S. KYC rules are now included in every banking regulation. These security measures are frequently put in place whenever a business onboards a new client or when an existing customer gets a regulated item. KYC procedures must be followed by the following financial institutions:

  1. Any business engaged in transactional activities, whether directly or indirectly
  2. Broker-dealers
  3. Platforms for private financing
  4. Banks
  5. Apps for financial technology
  6. Credit cooperatives

KYC Procedures Against Money Laundering

Money laundering is known as the fraudulent legalizing of someone’s profits and assets. It involves engaging in fraudulent activities to generate a large amount of black money. Many dangerous acts, such as smuggling, drug trafficking, and abduction, can only be conducted if the wealth can be conveniently laundered. The most convenient approach to purifying illicit money is to route it via a regular financial institution. Technical advances have made it considerably easier to transfer funds to overseas institutions. It’s also becoming harder to follow the money trail and find the source of this money.  KYC compliance software has been used to fight money laundering. It is referred to as a company’s technological armour, used to confirm that its clients are who they claim to be. KYC software helps firms to know their customers more efficiently and quickly. AI integration improves accuracy, time efficiency, usability, and cost-effectiveness. 

3 Advantages of KYC Procedures

KYC procedures have recently altered the corporate landscape. It strengthens a company’s privacy more than before. New reusable KYC solutions offer a safe environment for businesses to do business without fear of fraud. The following are some additional advantages of these regulations:

  1. Customer Service

Banks must pay a high price for lengthy wait times, and customers who prefer quick and easy transactions find it inconvenient. Most bank customers did not enroll in the newly available financial services. KYC procedures allow the company to authenticate a customer faster and minimize superfluous processes. In order to enhance the consumer experience.

  1. Management of Risk

Analyzing a user’s risk profile throughout the onboarding’s enhanced due diligence phase is inadequate. Through commercial collaboration, banks or other institutions must monitor for signals of terrorist funding, suspicious activity, or other high-risk behavior. By applying KYC procedures, a firm can mitigate any risk before or throughout the course of operations.

  1. Transaction Tracking

Continuous monitoring necessitates a thorough examination of all consumer data as well as the administration of financial activities and accounts. It should be focused on the parameters specified in the customer’s risk profile. KYC procedures monitor all client transactions and flag questionable ones.


The development of technology in financial services has led to an increase in fraud. Most businesses do not care to examine their clients’ backgrounds to see whether they are frauds or not. In the onboarding process, the fake customer potentially costs billions of dollars. Fraudsters can now easily commit crimes like corruption, money laundering, or funding terrorism. So there is an urgent need for financial organizations to adopt security regulations to stop them. Know your customer measures are being implemented to combat these crimes. KYC procedures enable businesses to verify that a client is who they say they are. These standards authenticate a consumer’s identification faster than manual verification and enhance the customer experience.

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