One of the major reasons why businesses perform KYC screening on their customers is fraud prevention and risk prevention. Fake or stolen identities are used by fraudsters to conduct their illegal activities anonymously. Mostly the victim businesses and institutions are targeted for financial gain.
Some common frauds with businesses are account takeover fraud, money laundering, terrorist financing, phishing scams, etc.
KYC and AML compliance help businesses with effective risk management. Once the risk is identified, KYC verification helps in seamless and thorough implementation of fraud prevention measures. Because designing risk prevention strategies is the first step, KYC and AML screening helps in reaping the benefits of such strategies.
2- Regulatory Compliance
As mentioned above most of the businesses around the globe are liable for KYC and AML compliance. KYC and AML are not limited to developed and prosperous countries. Global regulatory authorities are expanding the scope of KYC compliance and AML regulations to eliminate money laundering at a global level.
For instance, recently FATF, a global regulatory authority included new members in its member states. The newly added countries are not developed countries but are the ones with a high rate of financial crime. Other than that most of the countries have their own KYC and AML regulations and regulatory authorities for their thorough compliance. Some major authorities are mentioned above.
Regulatory authorities have the right to charge high penalties to the reporting entities in case of non-compliance. KYC and AML compliance practices help businesses in preventing any such penalties.
3- Secure Customer On-boarding and Customer Retention
Going KYC compliant helps businesses in developing a secure customer base. Screening the clients before onboarding shows its commitment towards securing the interest of all the stakeholders.
The research in 2018, found that 66% of the customers feel more secure on online platforms that use security protocols. Performing KYC and AML screening on clients gives a positive message to the customers that you have them covered against fraudsters. Showing your security concern through visible security protocols helps in retaining clients. The same research found that a lack of visible security is the major reason why clients abandon an online transaction, globally.
