Know Your Customer (KYC) checks have become a key measure of due diligence for companies across the board. What was once a requirement confined only to the financial sector is now an essential business tool for reputation management and risk control. Consider that more than 90 countries have made KYC checks mandatory and all businesses there must verify the identities of their clients in accordance.
Businesses use KYC to verify the identity of their clients, customers, and suppliers. The aim is to confirm that people are who they claim to be before you enter into a business relationship with them. This is typically a two-pronged process, where one stage is the initial onboarding of a new client and the other is recurrent monitoring of existing clients.
KYC at the time of client onboarding includes multiple controls that depend on industry requirements. The typical steps include verification of identity documents, identification against known parties like politically exposed persons (PEPs), and transactions monitoring of customer’s past and current customer activity. When verifying a potential client, it can be particularly useful to classify their risk category and define what type of client they are.
Recurrent monitoring is equally necessary because a client’s profile might change with time, and some initial KYC steps may have to be repeated to review and update their risk rating.
Why are client KYC checks so important?
Businesses are perpetually open to risk from the people they liaise with, whether the risk is of corporate fraud, money laundering, or reputation damage. These risks are now compounded by the way digitization is transforming industries. The more activities a business conducts online, the greater its exposure to cyber risks like privacy breaches and data leaks. This is highlighted by Risk Based Security’s Data Breach 2020 Report, which found that the number of breaches in 2020 touched a staggering 36 billion.
Such risks have an obvious component of financial loss. For example, as per this 2020 Identity Fraud Report, losses due to online fraud grew 15% in 2019 to almost $17 billion. The other major collateral in a crisis is the reputation of the company.
In the digital age, a company’s online reputation is a significant asset. Businesses are now operating in a reputation economy where damaging content can cost them as much as £500,000, as indicated by Igniyte’s Reputation Report. Customers today depend almost entirely on Google search for information on brands and businesses, and the first page of search engine results can make or break their buying decision.
A tarnished reputation can drive away even loyal customers, but a solid reputation builds trust with existing stakeholders, attracts new customers, and boosts revenue.
The checks can be quick, easy, and cost-efficient
In 2019, ABN Amro’s shares fell 9% overnight after they were charged with suspicious transactions that had resulted from their negligence to conduct sufficient KYC checks on clients. Earlier, in a similar instance, ING had to face fines amounting to 775 million Euros for financial crimes committed by clients who had not been properly screened.
These are the kinds of crises that a robust KYC system aims to prevent. Through close screening and monitoring, a company’s KYC procedures can minimise its chances of getting entangled with high-risk individuals, whether clients or suppliers. But in the case of KYC checks done manually or through slow traditional methods, there is additional risk of operational or regulatory lapses. This is especially true when for every interaction, there’s a paper trail that requires manual processing.
Not only are traditional KYC checks a time-consuming and expensive affair but they also add friction to the client onboarding process. A recent survey by Thomson Reuters found that customer onboarding time was increasing annually by around 20%. It also found that some major financial institutions spend up to £360 million every year on KYC measures.
A much more efficient and cost-effective alternative is to automate your company’s KYC checks through professional reputation checkers. A specialist tool like Yoono will use AI technology to conduct online user verifications at a much faster speed and higher accuracy than traditional methods.
KYC is a key part of due diligence and an important preventive measure against cybercrime, financial fraud, and reputation loss. Since the need for client KYC checks will only continue to gather in importance, the smarter option for businesses is to optimise performance through better technology.
The simple, secure, easy-to-use interface of Yoono creates an intuitive user experience. Its smart search and report function provides an extra layer of safeguard against reputational risks. Built from a decade’s experience in reputation management, the automated service is a step towards streamlining KYC compliance for business users. It is also GDPR compliant, which mitigates the risk of data violations.
