In today’s digital world, knowing your customer is one of the crucial and significant tasks, especially for financial institutions and other relevant businesses. However, with the rising financial crimes and fraud, businesses critically need to verify the identities of new customers before onboarding them. The purpose of verifying user identity is to prevent fraud and any type of risks in the future, Not only this but verifying customer identity is one of the essential steps in becoming compliant with KYC and AML regulations. However, several customers are unaware of the documents required for KYC verification, which may lead to a delay in the process. Thus, in this blog, we will help you understand what documents you need to fulfil the KYC procedure requirements and how businesses use these documents to verify customers’ identities.
What is KYC Verification?
Know Your Customer verification is the process of verifying the identity of the customer during the onboarding procedure in a business. This process is explicitly designed to make sure that company is able to identify the new client and monitor any potential risks associated with them.
The purpose of verifying customer identity is to ensure that the customer is not involved in any illicit activities such as financial crime or money laundering and that the business is secure to build new relationships with them.
Usually, the KYC document verification process involves the gathering of user information and several documents such as proof of address, proof of identity, and some financial documents. Further, this information and documents are verified through numerous sources. Well, KYC verification is a mandatory process for almost every business that is integrated to reduce fraud and risks associated with the onboarded entities.
Why is KYC important?
KYC enables bankers and other financial organisations to confirm the validity of the documents and other identifying information that the client has submitted. Assessing a person’s identification is crucial to preventing fraud because of situations like money laundering and syphoning money from bank accounts. All customers are required to adhere to KYC rules, which have been in use for many years. It is not possible to open a bank account without KYC compliance.
Unfortunately, banks have been using manual KYC, which takes a lot of time and labour from humans. Moreover, there is always a chance for human error. A mistake in these procedures could cause the institute to suffer a significant financial loss. Banks must improve their KYC verification procedures.
Documents Required for KYC Verification
The documents required for KYC verification vary depending on the type of business, customer, and region. Since every country has specific requirements for KYC regulations compliance and different industries conduct dissimilar KYC procedures for their customers. However, there are some specific documents required for KYC verification:
Proof of Identity
Proof of identity includes any identity document which is officially issued by the government. This document may include a national identity card, driving licence, or passport. These documents are used as proof of identity during the KYC verification process.
Proof of Address
Other documents required for KYC verification are the proof of address, which is needed to verify the user’s residence. Several documents such as bank statements, utility bills (not older than three months), or lease agreements, can be used as proof of address.
Proof of Funds
During the KYC compliance regulation, some financial institutions may also request customers to provide documents for proof of income. These documents verify the customer’s financial status and ensure whether the wealth is obtained through legitimate means. Proof of income documents may include bank statements, pay stubs, or tax returns.
Business Documents
Some additional documents during the KYC verification process are also required by many businesses such as business licences, tax ID numbers, proof of business registration, and so on.
Nonetheless, it is crucial to note that these documents are essentially required for conducting an effective KYC process. Yet, some companies may require additional information depending on the sector and regulatory standards. However, if you’re more concerned about information confidentiality, financial organisations make sure to use these documents for KYC verification only and keep them secure.
Final Words
KYC verification is a crucial process for numerous financial sectors such as banks, insurance, and other relevant businesses. However, these industries are subject to conduct this process to detect and mitigate financial risks and scams. Thus, to successfully implement this process, several documents are required by the customer. These documents are needed to verify customer identity and recognise any potential risks associated with them. Therefore, the KYC process increases security and precision within businesses, improves customer experience, and sustains market reputation.
Now that you’ve got to know about the documents required for the KYC verification process, follow KYC AML Guide to understand how KYC is done by organisations to prevent financial fraud.