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How to Prevent Fraud and Mitigate Risk for Online Customers

Digital measures are powerful and convenient to fulfil Know Your Customer (KYC) requirements. Peculiar measures, their accuracy and speed are best in their approach and can’t be contested to fulfil Anti Money Laundering (AML) Compliance. Although inherent benefits are uncountable, yet many institutions are leery of using new technology. Organizations need to understand the significance of digital verification for their online customers and they should dispel their reluctance. Any transformation for early-adopters is challenging. To staid and conservative laggards, new technology can’t develop interest until it becomes standard by regulators. Digital verification differs from the norm but organizations should transform their business for digital verification, not for personal attributes but it is best for every business and their clientele.

Manual or traditional KYC techniques might be enough for your needs depending on the countries you cover and the volume of transaction, but your current customer due diligence (CDD) could be cheated i.e you can’t verify every document of customer manually as it takes time and it is a very hectic job to do for every document, but online document verification or digital document verification is far obvious and convenient than traditional process. Digital KYC can fulfil regulatory requirements while customer onboarding experience more efficiently. If your business is small and you are following manual verification methods, they might do the job for you. But if you are intending to expand your business worldwide or in multiple cities than digital KYC is inevitable because it will create a framework for speed and adaptability. Many Consider these processes have a downside risk and are very daunting to achieve.

Security Determinations:

The utmost important responsibility of every organization is to protect the customer data throughout the customer lifecycle in this era of massive data breaches. An organization must take some measures when vetting third-party vendors. The organization must ensure the sincerity of the vendor about information security and its practices to mitigate risks, meeting regulatory and legal compliance requirements. Vendor must be trustworthy and should be prepared for audits.

Elements of effective KYC program:

Risk assessment is crucial for successful customer identification program. Documents and non-documentary procedures are used for customer identification and many organizations use a combination of both. Organisations should build strong policies for customer identification and these shouldn’t be followed willy-nilly. Policies are dependent on the approach of risk for a particular organization such as account types of that financial organization, types of services, types of products, different geographic locations of customers, available identifying information and many more.

Customer Due Diligence Program:

Due diligence program must include these practical steps to make it effective.

1- Gain a good understanding of customer’s business, it’s geographical location and customer identity.

2- Classify customer risk after authentication.

3- On existing customers conduct due diligence assessments.

For higher risk customers perform enhanced due-diligence to understand customer activity deeply and mitigate associated risk. Many factors for high-risk customers are enshrined in the legislation of countries that could be beneficial for financial institutions such as location and occupation of the customer, his expected methods of payments, type of transactions and many more.

KYB requirements are different according to multiple jurisdictions. Four basic measures to implement an effective KYB program are: Identify Ultimate Beneficial Owners, Retrieve Company Vitals, analyze ownership structure, analyze owner percentage and perform AML/KYC checks on individuals. AML and KYC checks are crucial for customer identification and compliance. But KYC and AML compliance must be cost-effective that doesn’t burden the customer. Many complexities and escalating costs bogging financial institutions down according to a survey report released by Thompson Reuters. It also revealed that KYC experience was not good for 89% of corporate customers and 13% of them switched to another financial institution (FI) due to this adverse experience. Multiple financial institutions are not providing good customer experience and comprehensive compliance program so the cost is rising. 800 financial institutions were surveyed and the average cost for compliance program was $60 million annually.

Compliance professional should perform an AML and KYC compliance program in a reliable and comprehensive way to reduce the cost rather deferring some check of the compliance program to reduce the cost. Eliminating fraud, battling money laundering, bribery, market abuse, corruption and many other financial misconducts could be removed with the help of regulatory structures.


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