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KYC Banking - Protecting Financial Institutions From Identity Theft

Nowadays, online transactions are a more convenient way for every individual. Clients want to avail the benefit of online banking instead of physical presence. Customers who are interested in onboarding may be in any part of the world. The need for their authentication is a basic necessity. This authenticity check is acquired by KYC (Know Your Customer) Banking.

KYC in Banking assures the real identity of clients. The legitimacy of these customers is important no matter if the client is an authorized entity or a common person. It evaluates the genuineness of the end-user and checks whether that person is the same as he claims to be. To eradicate money laundering and financial terrorism the determination of outgoing and incoming money is crucial. For this critique, KYC Screening is considered for safety reasons, as online extortions are escalating due to the Covid-19 pandemic. The online digital identity verification process needs to avail KYC laws to protect the individuals’ accounts from frauds. The more people are availing of online services, the more they are getting into hustles. Due to a lack of verification assistance fraudsters are augmenting and getting access to the accounts of end-users. This leads to loss of market value, loss of the trust of clients, and chargebacks.

Significance of KYC Compliance

KYC Banking is a way of checking the validity of the end-user before opening the account and directing the transactions. This system of identification helps to recognize where the funds of clients are coming from, gives accurate identity, and tells the nature of business. This helps the banks to notice the hazardous activities of end-users wisely. The United States passed the KYC Compliance first in 2001 as a Patriotic act to diminish the risks of money laundering and financial terrorism. This act has provided basic guidelines for banks and because of this, these banking sectors demand identity documents for the evidence purpose.

KYC Requirements for Banks

To establish the CDD requirements, KYC in Banking come across different ways of data identification which are defined by FinCen, they are given below;

  • Distinguishing and authenticating the identity of the end customer
  • Acknowledging and verifying the identity of owners and legitimated persons of businesses
  • Checking the type of business from the prevention of cheating and frauds
  • Observing doubtful dealings and in the case of risks, andprotecting the clients’ accounts

KYC Banking Regulations Operators

There are two KYC laws operatorsgiven below;

1 - Customer Identification Program (CIP)

2 - Customer Due Diligence (CDD)

Customer Identification Program (CIP)

Customer identification program in the United States apprehends that the individuals involved in the financial dealings have to endorse their identity which will safeguard the clients from frauds like money laundering, financial terrorism, identity thefts, and all illegal activities.The minimum rules to follow for the opening of an individual's account in the Customers Identification Program (CIP) are given below;

  • Name
  • Date of Birth
  • Address
  • Identification number

Customer Due Diligence (CDD)

The process which diminishes the scam risks and initiates the trust level in the customers is CDD. Customer due Diligence helps the banks and economic organizations in eliminating the threats of money laundering which can be attempted by people in the PEPs lists, crooks, and terrorist administrations. This can be practiced at three stages, such as;

  • Simplified Due Diligence is when the risk of money laundering is very low and the whole Due Diligence process is not very mandatory.
  • Basic Due Diligence is when the basic data from all customers are collected for the purpose of identification and for the assessment of the risks related to it.
  • Enhanced Due Diligence is when extra data is acquired from the high-profiled clients to analyze their activities and which will save them from risks.

You also may have things to know about credit cards.

Advantage of Due Diligence in Banking

It is normal that every human being is producing some amount of money more or less. But not all people are interested in showing their amount of productivity to anybody. High authorities who are earning handsome amounts of money are more particularly aware of their incomes because they are not easy to show their assets. Somehow sometimes people take advantage of these privacy policies and avail illegal acts like money laundering by which they remain hidden from the organizations which collect the taxes. Which can damage or delay the growth of a nation as well. Therefore, to save the nation from these scams and frauds KYC banking is playing a vital role. In which KYC laws attain the high profile risky customers which can be found in PEPs lists, save other clients from risks, eliminate all those frauds and develop a high level of trust in end users.


KYC Banking is playing a vital role in safeguarding customers from identity thefts and preventing them from money laundering and financial terrorism. This helps to catch the criminals out of the way very smartly. This also gives relief to the clients that they can onboard themselves by staying at home.

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