What is Customer Onboarding Process Under KYC and AML Requirements?

The customer onboarding process is the most important point of connection between the customer and the company. This point, which is seen as the first step, is an important step in keeping your company safe and avoiding risks. In particular, regulated financial institutions must comply with the requirements of AML/CTF and KYC (Know Your Customer) regulations and customer onboarding processes. Following the KYC controls, another important point is the follow-up of financial transactions.

Customer Onboarding and AML

There are regulators with local and global authority established to ensure financial systems' stability and prevent financial crimes. However, various financial crimes are committed every year around the world. International money laundering transactions are estimated at 5% of the global GDP. Every year, a $1 trillion global bribe is paid. The global cost of corruption is estimated to be around $2.6 trillion. Also, terrorist funding increases the number of terrorist activities in the world. Therefore, AML regulators have imposed some company obligations on customer onboarding processes to prevent financial crimes.

Most of these financial crimes occur through financial systems. Gaps in financial systems and financial institutions' failure to take various measures cause financial crimes to occur. Also, the economy's stability is damaged as a result of financial crimes. Money laundering is the process of showing the source of illegal income as legal income by hiding it. Regulators aim to prevent financial crimes through regulations and laws. Regulations require you to first KYC-check your customers during the onboarding process and then follow their financial transactions. Companies that meet this KYC requirement will ensure compliance. Regulators fine financial institutions if they do not meet the Know Your Customer requirements.

Enhance your customer onboarding process with effective KYC  to establish trust, mitigate risks, and ensure compliance.

Customer Onboarding and KYC

As we mentioned above, the first thing to do is apply KYC guidelines to customer onboarding processes. Customer identification is the most critical point of KYC. The control processes applied in the KYC checklist ensure that the business has the necessary information to open an account with the customer, and the risk level of the customer is determined.

Also, KYC refers to the checks made at the beginning of the customer relationship to identify and verify that they are who they say they are. This is especially necessary for organizations subject to AML regulations. That is, before initiating the business relationship in this part, it generally allows the creation of a customer risk profile by collecting his personal data and identity documents.

Then, through CDD, they evaluate whether the information given by the customers during registration like address, ID number, and birthday is correct. In addition, as long as there is a customer relationship, CDD checks should be made on an ongoing basis, which requires keeping track of transactions and updating them. Customer Due Diligence procedures include enforcement, PEP, and adverse media screening. The individuals in this data are high-risk customer profiles for companies. For this reason, companies should determine customer risks when opening a customer account and follow a process accordingly. 

If identified as a high-risk customer, the Enhanced Due Diligence process is applied to the customer. If there is no suspicious situation in the controls made up to this point, the customer's account is opened.

Companies should continue to make these checks for their customers at regular intervals. According to AML obligations, companies have to control the financial transactions of their customers.

regulated financial institutions must comply with the requirements of AML/CTF and KYC and customer onboarding processes

What are KYC Requirements and AML Regulations for Customer Onboarding?

Companies have to implement the KYC guidelines for customer onboarding processes. The companies' compliance officers fulfill and conduct the companies' liabilities in the compliance processes. Customer identification is the most critical process of KYC. Then, the accuracy of customer information will be checked. If the customer's data is not verified, the customer's other information may be incorrect. In this case, all controls applied in all AML, KYC, and CDD processes will be non-functional. Furthermore, the regulators may penalize the company for this error in the control process.

Then, the company starts to investigate the customer's history. First, the customer's previous financial transactions are reviewed. Any suspicious transactions of the past period are investigated. If there has been a criminal transaction in the customer's past transactions, the company will want to take precautions against this. No firm would want the financial institution to be a client of a guilty person. These clients are dangerous for companies.

After this stage, companies have to conduct a risk assessment. The risk assessment processes applied are generally called Customer Due Diligence procedures. Customer Due Diligence procedures include sanction list, PEP, and adverse media screening. The individuals in this data are high-risk customer profiles for companies. Therefore, companies should determine customer risks during customer account opening and follow a process accordingly.

Considerations when determining the Customer Risk Level:

  • Accuracy of the documents submitted by the customer to the company.
  • Business industry in which the customer works.
  • Sanction and Politically Exposed Person screening
  • Past financial transaction history

If identified as a high-risk customer, the Enhanced Due Diligence process is applied to the customer. If there is no suspicious situation in the controls made up to this point, the customer's account is opened.

Financial institutions that implement these processes are considered to have fulfilled AML and KYC rules. Also, companies should continue to carry out these checks at regular intervals for their customers. According to AML obligations, companies must control their customers' financial transactions.

Merchant onboarding refers to the process of adding different merchants to a payment gateway policy so that they can access their API as well as the virtual terminal and test the payment gateway.

detailed examination of kyc and risk assessment products


How do Companies Improve Their Customer Onboarding?

Banks, money transfer companies, FinTech, payment companies, accounting firms, and all other companies providing financial services have to comply with KYC solutions and AML regulations. For financial companies, the guidelines are endless. Financial service providers, such as banks, should take measures to ensure that their client account profiles are accurate and risk-based. In the past, the use of manual methods to combat financial crimes by companies has been complicated. Today, financial companies use AML Screening Service, such as Sanction Scanner, to meet regulatory requirements. Due to the rapid digitalization of onboarding systems with the impact of covid-19, solutions became more necessary than ever before.

Sanction Scanner provides software solutions for Anti-Money Laundering Compliance Programs by international standards. The products enable your business to comply with AML and KYC laws with Remittance & Payment Screening, Customer & Merchant Onboarding/Monitoring Process, and Real-Time Transaction Monitoring features. Sanction Scanner helps financial firms comply with regulations. With Sanction Scanner, you can easily manage your customer onboarding, transaction screening, and transaction monitoring processes. Our database consists of over 3000 sanctions, regulatory, and law enforcement records, and other official global and local sanction and pep lists, including those issued by the USA, UK, UN, and other global major and minor government departments. Sanction Scanner never saves any customer data or information. Customer queries made by companies are fully GDPR compliant. 

With Sanction Scanner, you can fight financial crime. Contact us or request a demo, and we will make sure you gain the upper hand.

Asset management organizations are subject to regulatory procedures; embodying customer onboarding strategy is essential.

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