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KYC: An essential process for verifying the identity of clients

A crucial identity verification process for any entity subject to anti-money laundering and counter-terrorism financing regulations, KYC ensures compliance and mitigates risks. However, reconciling KYC with the customer experience remains a major challenge for businesses.

KYC stands for Know Your Customer

For any financial institution and more broadly for all entities subject to anti-money laundering and counter-terrorism financing regulations (AML and CFT), KYC is a necessary and indispensable process for identifying and verifying a client’s identity.

 

In simple terms, at the intersection of compliance and customer relationship, this process is the means to know and recognise one’s customers:

 

Know Your Customer

Who is concerned about the implementation of KYC?

Article L561-2 of the Monetary and Financial Code (CMF) lists the professionals subject to this obligation, including:

• Institutions in the banking sector
• The Bank of France
• Investment firms
• Credit institutions

• Insurance companies and brokers
• Provident institutions
• Mutual insurance companies
• Unions for insurance

What impact does non-compliance with KYC have?

Beyond the risk that financial institutions face with poorly identified clients whose identities haven’t been verified, they also expose themselves to severe sanctions for non-compliance with KYC regulations, especially if the infraction is repeated.

 

Concerning these entities, it is necessary to systematise this verification procedure, which is essential before initiating a business relationship and conducting initial transactions.

KYC, a 5-step process

So, how does the KYC process work in practice? It relies on 5 main steps:
  1. Client Identification
  2. Collection of Supporting Documents
  3. Control and Validation
  4. Risk Assessment and PEP Identification
  5. Continuous Monitoring

Client Identification

The client provides basic personal data: name, address, date of birth, and identity document number. These pieces of information are crucial for establishing a reliable identification base.

Collection of Supporting Documents

The client submits a valid photo identification document (passport, national identity card) and recent proof of address. Additional documents, such as company statutes or registration documents may be required for legal entities.

Control and Validation

Document verification is conducted using automated or manual systems, followed by data validation from internal and external databases.

In remote onboarding, this step also relies on conducting additional due diligence (Article R561-5-1 of the CMF). This diligence can be demonstrated by:

  • An initial transfer from an open account held with a financial institution established in a Member State of the EU or the European Economic Area.
  • A qualified or advanced signature.
  • A facial scan RIVPs (Remote Identity Verification Providers). The RIVPs certification issued by ANSSI is a mark of trust, quality, and reliability of the solution used.

Risk Assessment and PEP Identification

Risk is evaluated based on profile analysis. By cross-referencing the provided information with international databases and sanctions lists, this step ensures that the client is not involved in illegal activities. At this stage, identifying Politically Exposed Persons (PEPs), considered high-risk due to their ability to influence acts of corruption and money laundering, is critical.

Continuous Monitoring

This involves regularly monitoring client transactions and behaviours. Analysing transactional patterns then helps identify any suspicious activity and adjust risk profiles. Financial institutions thus remain compliant with current regulations and protect themselves against financial and reputational risks.

KYC, an obstacle in the Customer Journey?

Beyond the regulatory obligation and the risk management tool it represents, KYC remains a technical challenge for the entities required to comply with it while preserving the smoothest possible customer experience. A client inconvenienced or even halted in the progression of their journey is potentially a lost client for a company, as they may complete the same process with a competitor.

 

This is why Xpollens offers a simple, fast, and secure KYC solution. Developed with Netheos (certified RIVPs), it ensures a perfectly compliant onboarding process while preserving an ultra-smooth customer experience, to be discovered here:

KYC in 4 key points

  1. KYC is a process that verifies the identity of clients and ensures their compliance.
  2. KYC is a legal obligation. It applies to professionals listed in Article L561-2 of the Monetary and Financial Code, notably in the banking, insurance, investment, and credit sectors. Non-compliance with KYC exposes these financial institutions to severe sanctions.
  3. KYC comprises five major steps, from client identification to continuous transaction monitoring, including supporting documents and risk assessment collection.
  4. The KYC process complicates the customer journey. Xpollens’ KYC solution ensures a smooth customer experience and compliance with regulations.

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