Identity Verification Procedure Explained: A Look at KYC Procedures
The Know Your Customer (KYC) process is a crucial part of online services, designed to verify the identity of users and prevent fraud, money laundering, and other illicit activities. This process, originally from the banking sector, is now widely used in various sectors, including telecommunications, financial technology, and most online services.
Customer Identification (CIP)
The initial step in the KYC process is Customer Identification (CIP), where service providers collect and verify key personal information to confirm the customer's identity. This typically involves providing full name, date of birth, address, government-issued photo ID, and tax identification or business registration for corporate clients. Verification may use trusted databases, biometric checks, and document verification to ensure authenticity.
Customer Due Diligence (CDD)
Following the establishment of identity, the provider assesses the customer’s risk profile through Customer Due Diligence (CDD). This helps determine whether standard or enhanced scrutiny is needed. For example, low-risk customers may undergo simplified due diligence, while higher-risk profiles receive enhanced due diligence, which includes more detailed checks. This step also involves verifying the customer's source of funds and business relationships.
Enhanced Due Diligence (EDD)
If a customer is deemed high-risk, such as politically exposed persons (PEPs) or complex corporate entities, additional investigation is performed. This includes deeper checks on beneficial ownership, monitoring transaction patterns, and obtaining more comprehensive background information to mitigate fraud and money laundering risks.
Ongoing Monitoring
The KYC process is not just a one-time event; customer activities are continuously monitored for suspicious or unusual behavior after onboarding. The customer information is periodically updated, and transactions are reviewed to ensure compliance with regulations and to detect potential risks.
Verification of Ultimate Beneficial Ownership (UBO)
For corporate or legal entity accounts, it is important to identify and verify the true owners (beneficial owners) behind the entity, including understanding the ownership and control structure. This reduces the risk of abuse by shell companies or hidden fraudsters.
In summary, the KYC process for online services involves collecting verified identity information, assessing customer risk through due diligence, conducting enhanced checks where needed, ongoing monitoring, and verifying the ultimate beneficial owner for legal entities—all aimed at preventing fraud, money laundering, and other illicit activities while complying with regulatory standards.
The KYC verification process can be automated using solutions like Regula Document Reader SDK, ensuring a quick and secure process. In cases of manual verification, the user may be invited to a live video call with a human agent for additional checks.
A robust KYC policy helps prevent financial and reputational losses, protects clients' personal data, and supports global efforts against money laundering and terrorist financing. In a world filled with deepfakes and synthetic identities, KYC verification is crucial. Successful verification leads to the Delivery of Results, allowing the client to proceed to the next step: registration for the service.
Service providers may utilize technology to automate the KYC verification process, such as the Regula Document Reader SDK, for a quick and secure identification of customers. In cases where manual verification is required, the user might be requested to participate in a live video call with a human agent for further checks.
The rigorous implementation of KYC policies ensures protection of customers' personal data, prevents financial and reputational losses, supports global initiatives against money laundering and terrorist financing, and verifies identity details to combat deepfakes and synthetic identities that could potentially be used for illicit activities, thereby enabling the successful delivery of online service registration.
