Understanding the gaps and pain areas in the KYC process of the financial services sector

The know your customer or know your client (KYC) guidelines in Banks, NBFC, and insurance companies require that professionals make an effort to verify the identity, suitability, and risks involved with maintaining a client relationship. The term can also refer to the regulatory aspects that govern these activities. Companies of all sizes employ KYC processes to ensure their proposed customers, agents, consultants, or distributors are anti-corruption compliant and are, in reality, who they claim to be. Banks, insurers, export creditors, and other financial institutions are increasingly demanding that customers provide detailed due diligence and compliance information. Initially, these regulations were imposed only on the financial institutions, but now the non-financial industry, fintech, virtual assets dealers, and even the non-profit organizations are required to do so.

 
The eKYC in the Indian context comprises the following processes, both Assets & Liabilities:
 

• KYC: Which means Know Your Customer
• KYCB: which means Know Your Customer Business
• KYCBR: which means Know Your Customer Business Risk

 
Regulatory intervention from RBI and other regulatory authorities such as IRDA and SEBI is going to be stringent on these parameters soon.
 
The key challenges an organization will face in customer on-boarding are as follows:

Customer On-boarding:

• Risk assessment of potential customers so that low-risk customers are onboarded.
• Effectively and efficiently onboard of the low-risk prospective customer in a time-bound manner and TAT.
• Capture maximum data points about customer’s personal, official, and social records.
• On-boarding of the customer for long term business relationship with first time right eKYC or KYC on-boarding.

Defaulters or AML Screening:

• To Filter individual, Corporate, and business entities from existing or prospective customers in the negative list (Financial Frauds, FCU, or AML Frauds), etc.
• Ability to drastically reduce False-Positives to save on unnecessary due diligence & KYC compliance costs.
• Provision to manage customer identification program (CIP) in single application flow incorporating customer information concerning different Risk categorization.

Identity and Address Verification: The critical challenges in identification and address verification arises when the prospect or customer does not have the mandatory documents such as Aadhar, Pan, Election card, own house, CIBIL Score, or electricity bill. Also, for people who fall outside the credit system.

Politicians, Advocate, Police, or Negative profile persons: There is a need to have a robust process to identify the sort and list the profile who are politically exposed person or person categorized as an adverse profile.

Risk & Compliance Management: After the opening of accounts, the following parameters need to be verified:

Constant Monitoring of Account (e.g., Jandhan Account opened through eKYC cannot have a large number of and high-value transactions).

• Ability to ascertain compliance score (quantitative one not subjective one) based on the data captured during account opening and account monitoring.

Customer due diligence and Enhanced due diligence: Authentication of ID, documents submitted by the existing and prospective customer, and validation of the same in an ongoing process. Tracking the movement of funds both inward and outward (to monitor AML or hawala transactions)
 
Regulatory Compliance Alert: Keeping track of relevant news on identification thefts, fraud, corruption, money laundering, other financial crimes, terrorist financing, etc. for your sector and jurisdiction.

 
Regulatory Reporting: Ability to conduct detailed investigations and seek authorization from seniors before generating and filing of reports (e.g., FATCA, FTR)

 
Fair Treatment to Customers: There should be sync of market-based solutions and regulatory frameworks to deliver consistent, efficient, and long-lasting business and customer service. The following means can be achieved through it.

1. Market Segmentation: Identifying the target market and coming up with market-specific solutions
2. Product design and Governance: The need of the customers relating to the market should suffice by the product designed.
3. E.g., Retail business mostly does cash transactions; hence a product with a high cash deposit and withdrawal limit will suffice to the needs of these market customers.
4. Marketing and promotion of the product:
5. Sales and advisory process
6. After the sales process and client on-boarding
7. Complaints and grievance’s handling regarding product and services

 
Risk Management:Despite Adhering and complying with all the facets and procedures of On-boarding customers through eKYC and enhanced due diligence, risk mitigation of existing and prospective customers is of utmost importance. The above process should be so optimally designed that the Operational Risk Both Systemic and non-systemic come to the bare minimum. If the institution can bring down the systemic and non-systemic risk to the minimal, then the Reputational Risk also comes down to the minimum.

To learn more about how a modern AI-enabled eKYC & Digital Customer On-boarding CRM platform can address many of these pain-points, feel free to connect with us at sales@simple.works.