In this article, BLUNATIVE CORP reviews how to run an effective Know Your Client program and the elements it comprises.
Did you know that fraud losses on online payments reached $41 million in 2023?
That’s why business owners need to know their clientele and who they’re dealing with by checking their identity, trustworthiness, and reputability. This helps to avoid fraudulent activity and protect themselves from fines and reputational damage. And going through the KYC procedure is what they need to achieve this.
What is Know Your Client (KYC)?
Know Your Client is a process of establishing the customer’s identity and financial profile to assess the dangers of doing business with a certain entity or company. Businesses do this to prevent money laundering and avoid unwanted participation in fraudulent financial operations.
The company should run a Know Your Client operation to:
- Make sure the identity of the customer is legitimate.
- Investigate the customer’s funds and financial activities to assess the risks of engaging in business activities with them.
- Find out whether the client is involved in money laundering or other illegal activities.
Key Elements of an Effective KYC Program
Know Your Client operations are essential for any financial institution or business that deals with financial operations. This is one of the major requirements that ensure the safety of money transactions and the company’s integrity in general. The KYC program consists of several key elements a company needs to implement to secure its business.
1. Customer Identification Program
Billions of dollars are stolen every year due to identity theft, that’s why the Customer Identification Program (CIP) is implemented by financial institutions and businesses dealing with money transactions. To fight money laundering and avoid terrorism funding, CIP requires all the individuals involved in conducting financial transactions to go through the process of identity identification.
The CIP states the following requirements to open a financial account:
- Name of the customer
- Address
- Date of birth
- Identification number
Additional steps in the screening process may be required such as checking the government sanction lists or investigating the financial transactions of the individual or a company in order to identify potential risks.
2. Customer Due Diligence
Customer Due Diligence is used to assess the level of risk of a certain individual or a business based on all the information collected via the Customer Identification Program. In some cases, Enhanced Due Diligence is required to investigate entities that belong to the risky category of clients.
The three levels of diligence are as follows:
- Simplified Due Diligence: the cases of low-value accounts that don’t present much risk and don’t require a full Customer Due Diligence.
- Basic Customer Due Diligence: the information gathered about a customer to assess the level of risk they pose in terms of fraudulent activity.
- Enhanced Due Diligence: the deeper investigation of the client’s financial activity to mitigate all possible risks associated with illegal actions.
How to know whether an EDD is even required? It all depends on a given country’s legislation, but it’s up to a financial institution or a business to conduct further investigation if a certain client seems suspicious. Thus, an ongoing monitoring process may be required, during which the following factors need to be considered:
- The occupation of the customer.
- The customer’s place of origin.
- Transaction history.
- The methods of payment the customer uses.
- The expected pattern of money transactions that is based on employment history and dollar value.
3. Ongoing Monitoring
Each customer should have an ongoing monitoring program set according to their risk profile. This is needed in order to follow the customer’s activity because one can move from a low-risk category to a higher-risk profile due to a variety of suspicious activities. Naturally, all the clients require an individual approach, but there are factors a company should pay attention to in general:
- Activities that happen across the border or unusual out-of-area transactions
- Activities that involve people on sanction lists
- Spikes in money transfers and other financial conducts
The company should periodically review the information on its clientele, keeping all the records up-to-date. It’s also a good practice to analyze the transaction types of the clients and whether they match the supposed purpose of the account.
Conclusion
Know Your Client is an integral part of running a business and maintaining a secure environment devoid of fraudulent activities. KYC allows a company to check the identity of its customers and assess the possible risks of doing business with them. It’s a regular practice that can be conducted on different levels, depending on the information gathered about a certain client. Ongoing monitoring allows financial institutions to determine whether their customers should undergo a more in-depth investigation, based on a variety of factors like suspicious activity and cross-border money transactions.
Frequently Asked Questions
1. What is BLUNATIVE CORP?
BLUNATIVE CORP is a company specializing in services that help the owners of communication platforms and social discovery products navigate the financial infrastructure and collaborate with various financial institutions to effortlessly enter the U.S. market.
2. Is BLUNATIVE CORP legit?
Yes, BLUNATIVE CORP is a legitimate organization that helps communication platforms and other social discovery-related businesses enter and thrive in the U.S. market by providing a variety of services. They ensure all the payments run smoothly with a high level of security by establishing partnerships with banks and other institutions.
3. What is Know Your Client?
Know Your Client is a set of procedures to check the identity of a customer and ascertain the level of risk they pose. This includes elements such as a Customer Identification Program (CIP), Customer Due Diligence (CDD), and Ongoing Monitoring.
4. Why does a company need to assess customer risk?
Billions of dollars are stolen from various accounts annually because of identity theft and fraudulent activity. Know Your Client helps keep money laundering at bay, allowing companies and financial institutions to run their businesses safely.
5. How does BLUNATIVE CORP establish legal and compliance support?
BLUNATIVE CORP handles all financial-related operations for their clients, including Know Your Customer procedures, the submission of legal documents, and monitoring the company’s security posture to ensure it meets all regulatory requirements.
