The KYC process – 3 components of effective KYC programs for banks

KYC or Know Your Customer refers to processes that are carried out for businesses to authenticate the identities of their customers. KYC is a legal regulation that binds businesses into performing certain actions during initial customer registrations as well as later for different reasons.

For financial institutions, the implementation of KYC processes is of particular importance. This is because financial institutions deal with products that are transferred over large distances and thus, can be used for or be involved in money laundering and other financial crimes.

Understanding the KYC Process for banks

When it comes to banks, KYC is implementation is of prime importance. The law has made it compulsory for banks to be in compliance with KYC regulations. FinCEN or the Financial Crimes Enforcement Network which is a regulatory body overseeing financial crimes in the world recently introduced the CDD or Customer Due Diligence rule as an amendment to Bank Secrecy Act.  The CDD rule is set in place to improve financial transparency for all kinds of financial businesses such as banks, mutual funds, dealers, etc.

The KYC process for banks involves a series of steps that are carried out, in order to,

  1. Identify the customers and verify their identities.
  2. identify the beneficial owners (anyone who owns at least 25% of the company) of companies opening accounts and verify their identities.
  3. understand customer profiles and relationships in order to develop customer risk profiles to better execute KYC. For example, for most customers CDD is applicable, however for high risk clients, banks need to go through a heightened measure called Enhanced Due Diligence.
  4. conduct ongoing monitoring of customers and KYC process to identify and report suspicious transactions and also, to keep customer information regularly updated

The KYC Process Steps in banks – Identity verification:

The Know Your Customer or KYC process for banks, for client onboarding, is simple and efficient taking only 3 quick steps for convenient identity verification. These steps can be set up during client onboarding and can also be used for ongoing KYC process monitoring.

The four steps include:

Acquisition of the required documents

In the first one of the KYC process steps, the user is asked to upload a standard state-issued photo ID. This can be something like a driver’s license or a passport, depending on different banks. Next, the user is required to upload a real-time video or a selfie taken through the camera or webcam.

The KYC process: Processing

Upon acquiring the documents, the KYC service provider starts to execute its processing. Here first the authenticity of the submitted photo ID is confirmed by checking for certain standard markers on the document. Once the ID document is attested, the system matches the photo on the ID with the selfie submitted by the user.


After completion of the standard eKYC process, the verification results are delivered to both the user and the company. The results are also stored in a database for later accession and verification.


If updating the results is ever required in the future, the same process is carried out and new data is added.

Components of an effective KYC program

The KYC process is extensive and complex. With strict regulations in place, it is imperative for banks to thoroughly understand the different layers that exist in the complex global KYC process.

Customer Identification Program

The customer identification program is based on the CIP law that mandates all institutions dealing with financial transactions to verify their customers’ identities. The CIP regulation is based on the Patriot Act of 2001 and outlines regulations for banks in their dealings with all individuals and companies who receive banking services in any capacity. CIP explicitly defines accounts, customers, and the minimum information that must be collected. This information includes names, dates of birth, addresses, and identification numbers. Most financial institutions use AI KYC processing and ID verification service providers for the implementation of CIP.

CDD or Customer Due Diligence

Customer Due Diligence is a critical element of risk management. The CDD KYC process is crucial for protection against criminals, terrorists, and financial crimes at the hands of Politically Exposed Persons or PEPs. 

The customer due diligence for banks includes verification of identity and addresses of all potential customers and assessing their business activities. On the basis of these factors, banks are required to calculate a risk score for all potential customers and place them into different risk categories. Depending on their risk categories, customers are monitored on different schedules. Risk categories can be changed if new information is flagged.

Ongoing Monitoring.

The third part of an effective KYC program is regular monitoring of all, but especially high-risk customers. This includes updating their identity verification data from time-to-time and also monitoring their transactions. Modern KYC processing services include monitoring of all transactions, spikes in activities, large transactions, regularly changing locations, regular scanning of sanctions and watchlists, and cross-border activities of customers.

Ongoing monitoring is crucial for a well-maintained CDD process as well.

The KYC process is a critical and legal requirement for all banks. With an effective KYC plan that verifies all individual and business identities and keeps a regular check on them, KYC allows banks to not only protect themselves but also, helps in aiding the government for improved national security.

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