What is Customer Onboarding Process Under KYC and AML Requirements?

The customer onboarding process is the most important point of connection between the customer and the company. This point, which is seen as the first step, is an important step in keeping your company safe and avoiding risks. In particular, regulated financial institutions must comply with the requirements of AML/CTF and KYC (Know Your Customer) regulations and customer onboarding processes. Following the KYC controls, another important point is the follow-up of financial transactions.

What is the KYC Onboarding Process?

The KYC, or Know Your Customer, onboarding process is a pivotal mechanism for financial institutions to cultivate a secure and transparent relationship with their clientele. This essential protocol involves a detailed procedure of collecting, verifying, and analyzing customer information to align with legal standards and diminish exposure to financial risks.

This meticulous process is integral for maintaining compliance with AML regulations, which are designed to prevent financial crimes. The foundational data that businesses must collect for customer identification includes:

  • Name;
  • Date of birth;
  • Address.

As a critical regulatory requirement, the KYC strategy is instrumental in combating the proliferation of money laundering, the financing of terrorism, and a spectrum of financial crimes. It embodies a rigorous approach to authenticate customer identities, offering a robust defense against the infiltration of fraudulent schemes and enhancing the overall security posture against cyber threats.

regulated financial institutions must comply with the requirements of AML/CTF and KYC and customer onboarding processes

Who Needs KYC During Onboarding?

KYC during the onboarding process is essential for a broad spectrum of entities, particularly those within or associated with financial transactions and services. The sectors that predominantly require KYC include:

These sectors are mandated to implement KYC procedures to ensure compliance with AML regulations, prevent fraud, and establish a secure and transparent operational framework.

KYC and AML Requirements for Customer Onboarding

Navigating the complexities of customer onboarding involves adapting to the regulatory landscape of each jurisdiction, which dictates the specific procedures and checks required. While some regions allow for straightforward document verification and real-time liveness checks, others demand more intricate methods, such as conducting video interviews with customers as part of the verification process.

Common elements across most customer due diligence frameworks include:

  • Gathering Customer Data: The foundational step where a business collects essential information about the customer, setting the stage for further verification.
  • Authenticating Customer Information: A crucial process where the information provided by the customer is validated against official documents or trusted, independent sources.
  • Ensuring the Presence of the Customer: Techniques like biometric verification are used to confirm that the individual presenting the documents is indeed the person they claim to be.
  • Validating the Customer's Address: This involves confirming that the customer actually resides at the address they have provided, adding another layer of verification.
  • Uncovering and Verifying Beneficial Owners: In cases where ownership is not straightforward, identifying and verifying the identities of those who ultimately own or control the customer (if applicable) is necessary.
  • Determining the Intent of the Business Relationship: Understanding and documenting the intended purpose behind the customer's desire to establish a relationship, ensuring it aligns with lawful and ethical practices.

While regulatory bodies set the baseline requirements for KYC compliance, businesses often go beyond these mandates to incorporate their own tailored requirements into the onboarding process. This customization allows businesses to:

  • Align with AML standards while also catering to the unique aspects of their industry and operational model.
  • Enhance the customer experience by simplifying the onboarding process, which can lead to higher engagement and conversion rates.
  • Optimize costs by implementing efficient and effective verification processes that do not compromise on thoroughness.

Creating a KYC workflow that is both compliant and adaptable requires a strategic approach. Businesses must design their onboarding processes to be flexible, allowing for adjustments based on customer demographics, industry-specific risks, and evolving regulatory requirements. This approach not only ensures compliance but also positions businesses to offer a seamless onboarding experience, fostering trust and loyalty among new customers.

What are KYC Requirements and AML Regulations for Customer Onboarding?

Companies have to implement the KYC guidelines for customer onboarding processes. The companies' compliance officers fulfill and conduct the companies' liabilities in the compliance processes. Customer identification is the most critical process of KYC. Then, the accuracy of customer information will be checked. If the customer's data is not verified, the customer's other information may be incorrect. In this case, all controls applied in all AML, KYC, and CDD processes will be non-functional. Furthermore, the regulators may penalize the company for this error in the control process.

Then, the company starts to investigate the customer's history. First, the customer's previous financial transactions are reviewed. Any suspicious transactions of the past period are investigated. If there has been a criminal transaction in the customer's past transactions, the company will want to take precautions against this. No firm would want the financial institution to be a client of a guilty person. These clients are dangerous for companies.

After this stage, companies have to conduct a risk assessment. The risk assessment processes applied are generally called Customer Due Diligence procedures. Customer Due Diligence procedures include sanction list, PEP, and adverse media screening. The individuals in this data are high-risk customer profiles for companies. Therefore, companies should determine customer risks during customer account opening and follow a process accordingly.

Considerations when determining the Customer Risk Level:

  • Accuracy of the documents submitted by the customer to the company.
  • Business industry in which the customer works.
  • Sanction and Politically Exposed Person screening
  • Past financial transaction history

If identified as a high-risk customer, the Enhanced Due Diligence process is applied to the customer. If there is no suspicious situation in the controls made up to this point, the customer's account is opened.

Financial institutions that implement these processes are considered to have fulfilled AML and KYC rules. Also, companies should continue to carry out these checks at regular intervals for their customers. According to AML obligations, companies must control their customers' financial transactions.

Merchant onboarding refers to the process of adding different merchants to a payment gateway policy so that they can access their API as well as the virtual terminal and test the payment gateway.

detailed examination of kyc and risk assessment products

How do Companies Improve Their Customer Onboarding?

Banks, money transfer companies, FinTech, payment companies, accounting firms, and all other companies providing financial services have to comply with KYC solutions and AML regulations. For financial companies, the guidelines are endless. Financial service providers, such as banks, should take measures to ensure that their client account profiles are accurate and risk-based. In the past, the use of manual methods to combat financial crimes by companies has been complicated. Today, financial companies use AML Screening Service, such as Sanction Scanner, to meet regulatory requirements. Due to the rapid digitalization of onboarding systems with the impact of COVID-19, solutions became more necessary than ever before.

Sanction Scanner provides software solutions for Anti-Money Laundering Compliance Programs by international standards. The products enable your business to comply with AML and KYC laws with Remittance & Payment Screening, Customer & Merchant Onboarding/Monitoring Process, and Real-Time Transaction Monitoring features. Sanction Scanner helps financial firms comply with regulations. With Sanction Scanner, you can easily manage your customer onboarding, transaction screening, and transaction monitoring processes. Our database consists of over 3000 sanctions, regulatory, and law enforcement records, as well as other official global and local sanction and pep lists, including those issued by the USA, UK, UN, and other major and minor government departments. Sanction Scanner never saves any customer data or information. Customer queries made by companies are fully GDPR compliant. 

With Sanction Scanner, you can fight financial crime. Contact us or request a demo, and we will make sure you gain the upper hand.

Asset management organizations are subject to regulatory procedures; embodying customer onboarding strategy is essential.

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