Staying compliant is about to get much harder – especially for those who aren’t actively keeping an eye on changing KYC requirements.

Money laundering. Terrorism financing. Heavy fines. These are three important reasons why Know Your Customer (KYC) requirements for banks and financial service providers are increasing right now. 

Executives at these companies are feeling the heat of this demand. If you’re one of them you may feel like you are:

  • Out of touch with fast-changing KYC regulations and anti-money laundering (AML) trends
  • Vulnerable to KYC compliance gaps and potential financial penalties
  • Struggling to balance compliance with customer experience

Staying on top of these regulatory requirements is more important than ever, given that fines increased by 57% worldwide in 2023, particularly in the crypto industry. 

Shortcomings in customer KYC checks and AML controls were the main component of this $6.6 billion figure. 

The uptick in fines for AML and financial crimes violations in 2023 ($bn)

                                                           Source: Fenergo

Read on to find out everything you need to know about KYC requirements for banks and financial service providers right now, including their core components, how they’re changing, and what your company can do to keep up to speed with them. 

Table of contents

  • What are the three components of KYC today?
  • What are today’s AML requirements?
  • How are KYC requirements for banks and companies increasing?
  • How your company can navigate the new KYC and AML requirements
  • Berkeley Payment: Stay compliant while building a long-term revenue stream

Worried about KYC and AML fines? Contact Berkeley Payments today to find out how our payment systems and APIs can protect your company from costly financial mistakes.

What are the three components of KYC today?

All financial service providers, not just banks and fintechs, are under increasing pressure to comply with ever-evolving KYC (Know Your Customer) regulations, but wading through the legalese makes this a tiresome task. 

Yet it’s essential to know the answers to questions like ‘What is KYC data?’ and ‘How long does it take to complete KYC?’.

To make this a little clearer, here’s a summary of the three core principles of KYC today. 

1. The Customer Identification Program (CIP)

Many customers ask what documents are required for KYC in banking and CIP guidelines answer this. They include paperwork with their name, date of birth, proof of address, and sometimes details like their driver’s license or ID number. 

Much of the CIP process is automated nowadays so this stage typically takes a couple of minutes to play out.

Most financial institutions go a step further with CIP, however, checking government sanction lists and politically exposed person (PEP) databases to ensure everything is above board.

Analyzing financial transactions at this point (via public databases and third-party providers) can also help differentiate between regular business activity and potentially risky behavior.

2. Customer Due Diligence (CDD)

Now that you've met your customer, it's time to analyze the information gathered in the (CIP)

This is where Customer Due Diligence comes in. Here, you'll examine the nature and purpose of their relationship with your bank, ensuring all activity aligns with their background. The goal is to understand their financial risk profile. 

Most customers won't raise any red flags, but those who do require further investigation in the next stage. 

3. Enhanced Due Diligence (EDD)

EDD dives deeper into a suspicious customer’s background to understand their motivations and risk factors

This might include people with political connections, those with ties to sanctioned individuals, or even customers from high-risk countries. 

To truly understand these high-risk customers, you may need to verify their source of wealth, gather detailed risk management reports, and conduct additional third-party research.

KYC vs. Know Your Business (KYB) 

KYC focuses on understanding your customers. KYB, meanwhile, concentrates on understanding the people your company has a business relationship with.

Similar to KYC, KYB involves a tiered risk-based approach, including obtaining basic business details (like ownership structure, beneficial owners, and registration documents), evaluating the inherent risk, then delving deeper via EDD if there are concerns. 

This might involve reviewing financial statements, conducting reference checks, and verifying business licenses.

What are today’s AML requirements?

While KYC looks at a customer’s risk profile, AML assesses your organization’s. These legal requirements include:

  • Establishing clear policies for customer onboarding, ongoing monitoring, and reporting suspicious activity.
  • Monitoring transactions for suspicious activity through automated systems.
  • Providing regular AML training for all employees.
  • Conducting internal audits to ensure program effectiveness.
  • Staying updated on financial industry best practices and regulatory changes.

A failure to keep up to speed with AML can be very costly for businesses with regulators frequently imposing sanctions on those that fall out of line.

How are KYC requirements for banks and companies increasing?

The world of finance is a constant struggle between innovation and security. New technologies emerge, and with them, new opportunities for criminals. 

KYC, KYB, and AML demands in the US and Canada are increasing in line with this - not just for banks, but for any business that provides financial services.

Several new developments have recently come to the fore.

The INFORM Consumers Act (US)

This new law is forcing online marketplaces to get to know their high-volume vendors a little better by collecting and verifying their bank details and tax IDs. 

Consumers will have access to more seller information, and platforms must suspend sellers who don’t comply. If they don’t, then they run the risk of heavy fines.

KYC firm Trulioo reported a 586% increase in KYB adoption ahead of the implementation of the new act. 

Canada’s Budget 2024 

Canada’s 2024 budget proposed a war chest of new measures to fight money laundering, terrorist financing, and other illegal activities. Businesses are now expected to comply with tougher AML laws demanding more detailed information sharing. 

The police will get more powers to investigate suspicious bank accounts and freeze virtual assets, while the country’s Border Services Agency will receive funding to detect trade-based money laundering. 

There’s even a dedicated new government team to tackle complex financial crime (the CFCA).

The US Corporate Transparency Act (CTA)

The CTA shines a light on a company’s beneficial owners (BO), requiring the firm to report them to the US government and record them in a certain way. 

BO information will need to include their full name, date of birth, current address, and personal identification number.

A rise in digital identity verification

Most businesses are now online, so KYC and AML are adapting to focus on digital ID methods, including biometric authentication and blockchain-based solutions. 

While having them is not obligatory, such digitalization will make it much easier for companies to meet new regulatory demands.

How your company can navigate the new KYC and AML requirements

Tough KYC and AML updates are designed to make financial services safer, but they present a potential headache for businesses trying to stay compliant. 

Many entities will need to overhaul their existing KYC procedures to avoid wasting time and money on lengthy processes that bog down business operations. 

Here’s a look at how companies are handling this new regulatory landscape. 

1. Automation and machine learning 

Automation also brings two major advantages to the customer KYC onboarding process: speed and accuracy. 

Nearly half of businesses (46%) are turning to AI/ML for help with KYC directives and analytics, according to data from SaaS provider Fenergo.

Many companies now scan online onboarding forms with Optical Character Recognition (OCR) and pre-fill data fields based on public records to speed up customer account opening. The latter also slashes human error when entering the data.

Machine learning, too, allows us to analyze vast amounts of customer information at various stages of the KYC process (including EDD) to identify patterns and potential risks associated with criminal activities like identity theft. 

2. Develop specific customer risk profiles

Trying to adopt a one-size-fits-all approach for customer risk profiles is a common mistake among businesses as inaccurate risk assessments increase the possibility of non-compliance

Instead, developing risk profiles for different customer segments (individuals vs. corporations, new customers vs. existing ones) allows you to allocate resources more effectively. 

Higher-risk profiles receive stricter CDD procedures, for example, while low-risk customers get streamlined verification. 

3. Biometric verification

Facial recognition and fingerprint scans are on the rise across the world as they’re a quick and safe way of verifying the customer’s identity. They also eliminate the need for the manual verification of identity documents, reducing the risk of identity theft.

Keeping this data safe will present its own unique challenge over the coming years, however, as Alexander Ray, CEO & co-founder of Albus Protocol (a DeFi framework for public blockchains) points out. 

“It is critical for leaders to prioritize the security and privacy of biometric data”, he says. “Compliance with regulations such as GDPR and transparent communication with users about the purposes and use of their biometric data is also important”. 

4. Work with compliant third-party solutions

Often, the companies you work with include KYC/AML compliance within their service to help your firm stay on the right side of KYC/AML regulations. 

This might include built-in identity verification that checks customer details against government databases, screening tools, and continuous transaction monitoring. 

Some even come with automatic regulatory updates so that you don’t have to remember to manually refresh your KYC process. 

Because this feature is typically included in the service’s cost, it often means you save a lot of money compared to building an internal compliance infrastructure. 

You also benefit from the expertise of a provider that carries out regulatory compliance for many customers, not just yours. 

Berkeley Payments: Stay compliant and dedicate more time to building long-term revenue 

KYC requirements for banks and financial service providers are becoming ever more stringent, placing a burden on businesses like yours to stay compliant.

Often, this leads to a time-consuming, resource-intensive KYC/AML customer onboarding that hinders growth.

At Berkeley Payment, we understand your challenges. That's why we offer a comprehensive solution that helps you navigate the KYC/AML landscape with confidence while unlocking new revenue streams for your business.

Here’s how.

  • Effortless compliance. Our white-label platform seamlessly integrates KYC/AML verification processes into your existing workflow. This includes automated identity verification, ongoing transaction monitoring, and real-time regulatory updates. 

By outsourcing these tasks, you save time and resources, allowing you to focus on core business activities.

  • Enhanced security. Our robust compliance framework ensures the highest level of security for your business and your customers. 

You get to minimize the risk of fraud, money laundering, and other financial crimes while protecting your reputation and building trust.

  • Streamlined onboarding: Our automated KYC/AML checks accelerate account opening, providing a smooth and positive experience for your customers. You’ll find this translates to increased customer satisfaction and loyalty.

  • Scalable solutions: Our platform is designed to grow with your business, no matter if you’re a new start-up or multinational entity. 

Don't let KYC and AML become a compliance nightmare. Choose Berkeley Payments as your trusted partner and unlock a world of possibilities.

Protect your business with KYC expertise AND build revenue at the same time. Sign up with Berkeley Payments to find out how our real-time payments platform can help you do this.

Send, Spend & Receive With One Exceptional Payments Platform

Find out how Berkeley Payment can add value to your business with white-label prepaid or debit card programs and real-time money movement solutions.

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