Know Your Customer guidelines help financial institutions avoid illicit transactions by enhancing their view of both their clients and their clients’ business relationships. The laws boil down to the simple concept that by verifying customer identities and evaluating risk factors, banks can inhibit money laundering, terrorism financing and fraud schemes.
What is KYC (Know Your Customer)?
KYC is a group of guidelines created by the government that carry important implications for financial consumers. These regulations also sometimes apply to other businesses that have any contact with money.
Why does KYC Matter?
Know Your Customer laws require banks to identify customers, confirm that they are real people and make sure they aren't on any federal watch lists. KYC laws originated in 2001 with the Patriot Act and they add requirements to the Bank Secrecy Act of 1970. Designed to deter terrorists, compliance with these laws is crucial for businesses operating in the U.S.
What Do We Need to Know about KYC?
There are two important categories of KYC guidelines, Customer Due Diligence (CDD) and the Customer Identification Program (CIP). Both are required by Title III of the Patriot Act and place responsibility on the institutions to follow the laws, which are enforced by The Financial Crimes Enforcement Network (FinCEN). CIP requires a bank to ask customers for identifying information such as a passport or driver's license. Companies may be required to provide a government-issued business license, partnership agreement, certified article of incorporation, information from a consumer reporting agency or a financial statement. The CDD requires banks to perform due diligence by predicting the types of transactions a customer may produce so they can detect suspicious behavior. The bank gives the customer a "risk rating" that determines when the account is monitored. This rating also helps banks identify customers that present a risk that's too high. Based on this information, the bank may reject that customer entirely. Banks must ask customers with suspicious activity in their account for more information, including the purpose of the account, banking references and a full description of business operations. There isn't a standard procedure for this due diligence, so techniques vary from one institution to the next. The Patriot Act requires banks to file a report when they detect possible suspicious activity. This portion of the CDD is enforced by FinCEN.
How does Yodlee help with KYC compliance?
Envestnet | Yodlee offers several tools that can help with KYC compliance, both for preventing fraud and for wealth management. Yodlee’s Instant Account Verification API leverages our patented account aggregation platform combined with a configurable set of verification rules allowing real-time account verification. Featuring multifactor authentication, this API supports questions and answers, CAPTCHA, tokens and multilevel verification methods. For wealth management, Yodlee offers Wealth Management Solutions, a digital holistic view of client financial data for tens of millions of consumers, offering valuable insights into consumers’ financial standing. With this information in hand, wealth advisors can tailor advice and product recommendations. This also empowers customers to monitor and grow their own wealth via portfolio management and investment planning tools. With these tools, Yodlee can help you better understand your clients’ risk tolerance to better help them achieve their financial goals.
