What is KYC (Know Your Customer) and how it works?

Find out what Know Your Customer (KYC) is and how it can help your company grow.

In 2006, an employee of the Wachovia Bank in England reported suspicious movements of a client who, among other things, had requested financing to buy a plane to his managers. Despite the notice, the bank did not take the necessary measures to validate its identity, which resulted in a millionaire fine when it was discovered that the aircraft was stopped in Mexico with a shipment of cocaine, and according to the findings of the Mexican authorities, belonged to the Sinaloa Cartel.

What is KYC?

Know Your Customer (KYC) is a concept that refers to the processes carried out by banks and other financial institutions, mainly to comply with the legal obligations established by governments, in which through identity validation of their clients, prevent money laundering and the financing of illicit activities such as organized crime.

The KYC has not only allowed international banks to comply with the legislation in European countries or in the United States, where they seek to combat money laundering or terrorist financing, but it has also been an effective solution to mitigate fraud around the world and design products that best meet customer needs.

Due diligence duties

Mexican regulation is one of the most rigorous and advanced in the world on this issue, since it not only obliges financial entities to provide information on suspicious customers, but also includes other types of companies such as real estate, brokerage houses, public notaries or luxury goods marketers, among others, to combat corruption or money laundering.

In Mexico, banks and other companies must have Know Your Customer (KYC) policies and follow increasingly strict protocols when it comes to getting new customers, in addition, the regulation considers the situation of some who deserve special attention due to the amount of money that they handle or by the type of operations they carry out; opening a savings account is not the same as making million-dollar transactions abroad.

In some cases, it is essential to carry out due diligence duties, such as validating the identity of clients; constantly and exhaustively monitor its operations to detect any suspicious activity; establish policies with users to guarantee compliance with regulations and adequately manage risk when achieving a new business relationship.

The use of technology in the KYC

The use of digital technologies is present in almost every aspect of our lives. In the case of companies in the financial sector, both traditional and FinTech, they must incorporate tools that allow not only to comply with Mexican regulations, but also to provide a better user experience, for example in the use of biometrics; where you can use your fingerprint to withdraw money from the ATM or use a facial recognition system to make transactions from your cell phone.

In the case of Know Your Customer (KYC) strategies, the first step is to validate the identity of the clients, and not only the financial sector can make use of technology to achieve this, but also other companies contemplated by Mexican regulation reducing costs of operation and risks, by preventing illegal activities such as identity theft fraud; it is enough to know that Mexico ranks eighth in the world in this crime.

Our solution

The presentation of official documents is the most common requirement that banks and other companies ask clients to validate their identity, however, it is a time-consuming, expensive process and is not 100% reliable. With the help of our Official IDOfficial ID service, this can be carried out immediately and without the need for so much paperwork, in addition to establishing greater security conditions such as the use of biometrics, document authentication and generating a digital file.

In addition, Tu Identidad has other validation services such as: Face match, Background check on blacklists or Fingerprint Biometrics, which allow the implementation of appropriate Know Your Customer (KYC) strategies and comply with the due diligence Duties contemplated by Mexican regulation and thus avoid penalties for not complying with the identity validation of your clients.

Remember that the implementation of KYC processes is not only an obligation provided by law, but it also allows you to add value to your company and helps you prevent illegal activities related to identity theft.