Online, always-on finance and banking have created security challenges for institutions fighting international terrorism, identity theft, and fraud.
What are KYC regulations?
KYC requires sufficient identity assurance and verification standards during customer onboarding to mitigate fraud and money laundering in finance and banking.
What are Know Your Customer (KYC) regulations?
Know Your Customer (KYC) regulations govern identity assurance and verification in the financial sector. They protect against money laundering, fraud, and identity theft.
Financial institutions must maintain specific controls to verify user identity. Requirements vary based on institution type, user economic profile, and risk factors.
KYC requirements go beyond traditional authentication. They can include identity assurance aligned with government standards, requiring multiple forms of official government ID (driver's license, passport) and sometimes in-person identification with company personnel.
KYC laws target three crimes:
Money laundering uses financial institutions or businesses to sanitize illegal funds by mixing them with legitimate money pools. This has challenged banks since banking began. KYC stops money laundering by linking customers with verified identities and credentials.
Identity theft becomes harder when banks require official documents or in-person assurance using company personnel or certified security professionals.
Fraud and terrorist funding face barriers through KYC's strict identity chain for all customers, preventing fraudulent use of funds for organized crime or terrorism.
Many countries enforce KYC laws. In the United States, the Bank Secrecy Act (BSA) of 1970 established anti-money laundering requirements that included identity assurance. Digital banking's expansion and international terrorism (funded through money laundering and fraud) led to the Patriot Act and updated AML laws.
What is KYC compliance?
Financial institutions perform regular due diligence on customers to comply with KYC laws, including identity assurance and expanded authentication.
The Customer Identification Program (CIP) sets baseline requirements for financial institutions. Institutions collect several official documents or identification from customers to ensure their identity. Requirements vary depending on fraud risk, including factors like money volume and user financial history.
Customer Due Diligence (CDD) involves collecting basic identification forms to confirm customer identity. These documents verify against risk and background databases to identify issues. Online databases and services (eKYC) operate as highly secure, regulated operations run by international expert firms.
Enhanced Due Diligence (EDD) applies to customers with higher fraud or terrorism risks. Required documents and practices differ based on context. High-risk customers may need several forms of official, marked government ID plus physical identity assurance.
Know Your Customer from around the world
Money laundering and fraud cross borders, prompting major governments to enact KYC laws.
France's Anti-Money Laundering Act (AMLA) includes several constituent laws defining KYC requirements: the Anti-Money Laundering Act, the Anti-Money Laundering Ordinance (detailing professional KYC practices), and the FINMA Anti-Money Laundering Ordinance (governing KYC and financial intermediaries).
The United Kingdom's Money Laundering Act governs KYC laws for financial institutions, including basic due diligence requirements and practices addressing financial blackmail and fraud against public figures.
Canada's Proceeds of Crime and Terrorist Financing Act establishes standard KYC requirements aligned with UK laws. It addresses regulated industries including accounting, gambling and casinos, precious stones dealers, finance, life insurance, and real estate.
The European Union's Fifth Anti-Money Laundering Directive modernized KYC in EU territories while adding new laws and requirements for financial organizations dealing in cryptocurrency.
Adhere to KYC laws and standards with 1Kosmos
Advanced KYC requirements have changed the types of identity verification required by financial institutions. Regulated enterprises need easier onboarding aligned with KYC and anti-money laundering laws.
1Kosmos combines advanced identity verification with KYC-compliant technology. The platform meets KYC requirements, including IAL2-compliant assurance methods with 99% accuracy operating under National Institute of Standards and Technology (NIST) 800-63-3 standards.
1Kosmos supports modern KYC and CIP requirements through SIM binding (the application uses SMS verification, identity proofing, and SIM card authentication for secure device authentication from employee phones), identity-based authentication (biometrics identify individuals through credential triangulation and identity verification), identity proofing (verifies identity anywhere, anytime, on any device with over 99% accuracy), private and permissioned blockchain (protects personally identifiable information in encrypted digital identities accessible only by the user, with distributed properties eliminating databases to breach or honeypots for hackers), and interoperability (integrates with existing infrastructure through 50+ out-of-the-box integrations or via API/SDK).
Learn more about 1Kosmos and customer onboarding with KYC.
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