Category: KYC/KYB

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KYC in eCommerce – What You Need to Know

kyc in ecommerce

If you run an eCommerce business, you already know that trust is everything. Customers want fast checkouts, easy returns, and secure transactions. But behind all of that sits something you can’t afford to overlook—KYC. Know Your Customer isn’t just a checkbox for compliance. It helps you spot fraud, avoid chargebacks, and protect your business from regulatory trouble.

So, what does KYC mean for online stores? How do you do it without frustrating your customers? And why does it matter even if you’re not a bank?

Let’s break it down.

What is KYC for eCommerce?

KYC (Know Your Customer) is a way to verify a customer’s identity before or during a transaction. For banks, it’s mandatory. For eCommerce platforms, it’s becoming necessary, especially if you’re dealing with high-ticket items, digital goods, cross-border payments, or offering any kind of credit or wallet service.

You don’t need to check every buyer’s government ID for every t-shirt sale. But you do need to understand who your customer is, how they behave, and whether their activity looks suspicious. That’s where eCommerce KYC comes in.

Why KYC Matters in eCommerce

  1. Fraud is getting smarter – Fake identities, stolen cards, and synthetic fraud (where real and fake details are blended) are rising. Fraudsters are using the latest tech and new-age practices to defraud customers. KYC helps businesses catch odd patterns early so they can protect the customers on their platform before the transaction even clears.
  2. Chargebacks cost more than just money – Chargeback fraud is any eCommerce business’s biggest nightmare. When a buyer disputes a charge, you often lose the item, the money, and your credibility with payment processors. Fraudsters take advantage of chargebacks to keep both the products and the money. With eCommerce KYC verification, businesses can prevent transactions that look off before they become a headache.
  3. Regulations are closing in – If you offer BNPL, wallets, or let users store card info, you’re no longer just a store, you’re a financial service. That means more scrutiny. KYC is not just a way to keep your customers protected, it’s also a way you can keep yourself protected from regulatory compliance fines.
  4. Trust sells more – When shoppers know you care about their safety, they’re more likely to come back. Strong KYC practices show customers you’re not just protecting your bottom line, you’re protecting them too.

KYC in Action: What It Looks Like for Online Stores

You don’t need a full compliance team to run basic KYC. There are levels to it. Here’s what it might look like at different stages:

  • Basic KYC – Email and phone verification. Geo-IP checks. Velocity checks (how many purchases from one card in a short time). This stops bots and simple fraud.
  • Intermediate KYC – Address matching, IP-vs-shipping location alerts, behavior analytics. For digital goods or high-risk areas, this gives you more control.
  • Advanced KYC – ID document verification, biometric checks (like face match), liveness detection. You’ll see this more with BNPL, crypto checkout options, or high-ticket items.

Good KYC doesn’t interrupt the customer journey. It works in the background or steps in only when needed. The goal is to balance friction and security.

Common Triggers That Call for KYC

Not every transaction needs deep verification. To keep customers protected, e-commerce businesses need to identify transactional red flags that require additional Know Your Customer (KYC) scrutiny. Here are some of the most common eCommerce red flags that require additional checks:

  • Sudden order spikes from one account
  • Multiple cards used on one profile
  • Billing and shipping don’t match, especially across countries
  • IP address doesn’t match the claimed location
  • First-time buyers making large orders
  • Unusual checkout behavior (very fast or slow clicks)

Use these signs as signals that additional scrutiny is needed. However, these signals shouldn’t mean instant block. With the right KYC tools, you can decide what to flag, hold, or approve.

How to Start Using KYC Without Killing Conversions

It’s easy to go overboard and scare customers away with too many pop-ups or requests. But smart KYC lets you ask only what’s needed, and only when it matters.

Basics of consumer KYC for eCommerce businesses:

  • Use email and phone verification at signup or checkout.
  • Add captcha or bot detection for high-volume product drops.
  • Geo-check IPs silently, no need to ask, just monitor.
  • Add address validation to avoid shipping fraud.
  • Track behavior across devices, too many logins from different locations in a short time? Flag it.
  • For higher-risk orders, integrate document upload only when the fraud risk is high.

If you’re working with a payment gateway or fraud provider, many of these tools are already baked in. Use them.

KYC Tools Built for eCommerce

You don’t have to build it all from scratch. Plenty of tools can plug into your stack. Look for services that:

  • Offer API-based verification
  • Let you choose when to trigger checks (risk-based rules)
  • Work fast—nobody wants to wait 30 seconds to verify an email
  • Handle privacy and compliance in multiple regions (think GDPR, CCPA)

A few common names in this space: DIRO, Onfido, Jumio, Trulioo, Persona, and Sift. Some CRMs and payment providers (like Stripe or Shopify Payments) offer KYC features as well.

Choose tools that can grow with you. If you add new products, markets, or services, your KYC process should adapt.

DIRO especially helps in verifying the address information provided by your customers. DIRO verifies proof of address documents directly from the issuing source, helping brands verify information instantly without the risk of any document tampering.

What Happens If You Skip KYC?

You might save a few seconds at checkout. But you’ll pay for it in other ways.

  • More chargebacks
  • More fake accounts
  • Higher payment processing fees
  • Trouble with compliance if you ever expand into finance
  • Damaged trust from real users who get scammed by fakes on your platform

Even if you’re not legally required to run KYC, it’s a smart long-term move. It shows you take security seriously. And it helps you stay ahead of fraud trends—before they take a chunk out of your margins.

The Bottom Line

KYC isn’t just for banks anymore. For eCommerce, it’s becoming part of the cost of doing business. But that doesn’t mean you need to make customers jump through hoops. Start small. Use smart tools. Add more checks only when the data says you need to.

Done right, KYC protects you, your customers, and your growth. And if you’re not already thinking about it, someone else probably is.

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What is EIN Verification in KYB Compliance?

EIN verification

Employer Identification Number or EIN is a type of Tax Identification Number (TIN) that’s issued by the IRS in the US for businesses. EIN is crucial for KYB compliance as it helps in proving that a business is operating legally. Including EIN in the KYB verification process helps in verifying whether a business has a valid EIN or not.

Similar to a Social Security Number (SSN) for individuals, an EIN works as a key identifier for businesses. Businesses that don’t have a valid EIN cannot legally hire employees, and manage finances. A valid EIN is an important factor for regulated entities (banks, FinTechs, etc.) as they’re required to conduct KYB checks for all partners before onboarding. 

Verifying another company’s EIN is useful for all regulated businesses, especially businesses that have to follow compliance rules. 

What is an Employer Identification Number?

The EIN is a unique 9-digit identification number issued by IRS for business identification, employment, and tax reporting.

Any business that wants to operate in the US needs to have a valid EIN. Companies can apply for EIN online through the IRS’s website. An EIN  allows businesses to handle tax obligations, open new bank accounts, and apply for credit.

Any US-based business needs to apply for an EIN if they:

  • Hire employees
  • Participate in a Keogh plan
  • Deduct taxes on non-resident alien income
  • Have links to other companies, such as estates or trusts
  • Operate as a corporation or partnership
  • File certain tax returns (alcohol, employment, excise, firearms, or tobacco)

EIN verification in the context of KYB verification is crucial for verifying whether a corporation is legit. A company’s compliance officer is responsible for checking & verifying the KYB information (including EIN). The goal of the verification process is to confirm that the data matches and the company is not fake.

What is EIN Verification?

EIN verification is the process of verifying the EIN number and its legitimacy. Generally, EIN is part of the KYB background check, which is done to verify a company’s legitimacy. The goal of EIN is to check whether a business is registered with the US tax authorities and if the company is legit. A company not having EIN or information not matching with the IRS’s records can be a sign that the company is fraudulent.

EINs are also needed for other processes such as opening a new bank account and investing. If you or your partner don’t have a valid EIN, it poses a risk in all these areas.

Importance of EIN Verification in Regulatory Compliance

While EIN isn’t mandatory for regulated businesses, several US laws have made KYB checks mandatory. So, EIN falls under KYB verification best practices. The entire process can be slightly confusing for businesses without a proper compliance team.

Here’s a breakdown of when EIN Verification is needed:

  • During Business Onboarding: EIN verification is part of the KYB checks when conducting background checks for a company.
  • When Opening a Business Account: EIN verification is also done before approving risky financial operations, such as approving loans.
  • For Continuous Due Diligence: Businesses also conduct EIN to comply with KYB regulations, ensuring businesses stick to tax reporting requirements.

Verifying EIN helps businesses analyze whether an entity is properly registered with the IRS. EIN verification in KYB checks helps spot red flags and mismatches in EIN information. 

Key Reasons Why EIN Verification is Crucial for KYB

EIN verification is crucial during KYB checks as it helps companies in:

1. Ensuring Compliance with KYB Requirements

EIN verification isn’t a mandatory part of the KYB verification process, but doing EIN checks can help in verifying whether a company is legitimate or not and if the entity is safe to conduct business with.

2. Highlight AML Risks

The primary reason for KYB checks is to reduce money;-laundering fraud risks. With a proper KYB verification process, businesses can reduce the risk of fraud. As EIN helps in verifying legit tax information for a business, including EIN checks in KYB verification is a good idea. 

3. Verify Organization Legitimacy

EIN verification helps determine if the company is operating legally in the US with a valid EIN or not. It also helps conduct financial processes and avoid legal liability.

Different companies are eligible to receive an EIN, such as:

  • Partnerships
  • Limited liability companies (LLC)
  • Sole proprietorships
  • Corporations
  • Government agencies
  • Trusts
  • Estates
  • Military entities
  • Churches
  • Farmers
  • Cooperatives
  • Indian tribal governments and enterprises

While onboarding any of these entities as partners, clients, or vendors, you have to conduct EIN as a part of your KYB checks. 

Summing Up

EIN (employer identification number) verification has become a crucial part of KYB checks in recent times. Having a proper KYB verification process in place can help in streamlining the process. DIRO online document verification process can help businesses streamline their KYB verification process with instant document checks.

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Third-Party Due Diligence Proces – Everything You Need to Know

third-party due diligence best practices

Due diligence is the primary part of building a business relationship. Be it an individual or entity, conducting due diligence helps a business analyze the amount of risk associated with someone. In compliance, the term is often related to third-party due diligence. 

Conducting due diligence allows compliance teams to make informed decisions on whether or not they should conduct business with an entity or individual. The third-party due diligence process is an essential function for organizations. It helps businesses to minimize the onboarding to risk elements. 

In this blog, we’ll go over what is third-party due diligence, the third-party due diligence checklist, and how to make a third-party due diligence process.

What is Third-Party Due Diligence?

Third-party due diligence definition is an investigation that a business conducts of an individual or a business before entering into a partnership with them. Usually, businesses have internal teams that conduct due diligence. Whenever a business looks to enter into a partnership with a new supplier/vendor/individual/business, they conduct third-party due diligence. It is undertaken to understand the level of risk associated with the entity.

The process of third-party risk assessment involves first making a list of all prospective third parties and assessing the risk level for each of them. Compliance teams collect crucial data about the vendor, their reputation, ownership data, and operations information. Businesses then do deeper research into the relevant areas to meet regulatory compliance. 

Every organization has its own third-party due diligence process. These rules change based on the region of operations, UBO information, industry, and much more. The due diligence process may be conducted by the organizations or with the help of third-party service providers.

Importance of Third-Party Due Diligence

As businesses grow, they have to become more careful of regulations, data privacy rules, and financial risks such as money laundering and terrorism financing.

With a lot of regulatory practices set in place, companies today have to uphold a higher standard. This means businesses have to invest more in third-party due diligence processes.

Unvetted third-party relationships can lead to several risks for the business. Large enterprises with multiple third-party relationships should make third-party due diligence processes their first and foremost priority.

It is essential because it helps businesses keep risk factors at bay. Every organization should have some kind of third-party due diligence checklist to verify vendors and individuals.

Third-Party Due Diligence Best Practices

As mentioned above, every business has its own third-party due diligence checklist, but there are some best practices every business should follow.

Here’s a list of third-party due diligence best practices to include in your due diligence process.

  • Make a list of all risk factors specific to your organization. 
  • Test your risk factors and the amount of risk they pose over and over again. 
  • Focus on building dynamic workflows. 
  • Database screening just won’t be enough, to combine human effort with automation. 
  • Make your third-party due diligence process based on your current risk framework. 
  • Use third-party due diligence software to enhance your current process. 
  • Find an ideal balance between centralized processes and decentralized teams. 
  • Use outsourcing to find gaps in your current due diligence process and to fix gaps n your internal knowledge. 
  • Take advantage of workflow automation tools.

How to Build a Third-Party Due Diligence Process?

Implementing a third-party due diligence process can be challenging if you don’t know where to start. Businesses spend months to come up with a due diligence process and overlook some crucial points.

Here’s how to break down the process and build a third-party due diligence checklist from scratch.

1. Make a List of All Current Third Parties

To start, make a list of all the third parties associated with your business. As a business, you have to be aware of all the current risk factors for your business.

You could ask the leaders of business operations to come up with a list of vendors, resellers, local agents, and more. Identifying all current third-party providers will help you understand the current scope of risk.

2. Know your Organizational Risk

Ensuring that your organization is risk-proof, including money laundering, trade sanctions, antitrust, or cybersecurity risks should be the priority. The goal should be to understand your own organization’s regulatory and compliance obligations.

Once you have that understanding, focus on learning how your relationships with current third parties magnify those risks.

3. Identify High-Risk Regions

Every country has a certain level of corruption risk. Countries that have high corruption risks tend to have local agents and vendors that also contain a level of high risk.

If you’re operating in a high-risk area, you need to be wary of onboarding third-party vendors with a lot of risks. You should focus on conducting due diligence on who you onboard.

4. Have an Understanding of Current Regulations

Every organization does some level of due diligence, even if someone asks third-party vendors for their addresses. You need to have complete information about the current regulatory landscape.

5. Learn About Current Reporting Processes

Every organization is required to report shady activities to their respective regulatory bodies. To ensure your organization can take swift action, you need to be sure about current reporting processes.

6. Rely on Automation

Third-party due diligence software is the perfect solution for businesses that are just starting to build their compliance process.

Third-party due diligence software like DIRO can help businesses onboard vendors and suppliers quicker and with complete surety. DIRO allows businesses to verify third-party vendors’ proof of address, bank statements, UBO information, and more in minutes.

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Due Care vs Due Diligence – Understanding the Difference

due care vs due diligence

Maintaining the integrity of online accounts is more than challenging in today’s time. Regulatory bodies keep writing more and more laws to help businesses keep themselves and their customers secure.

Financial institutions and FinTechs keep building cyber risk strategies to protect their customers from fraudsters online. This is one of the reasons why businesses need to understand the difference between due care and due diligence.

Understanding the difference between these can help financial institutions manage risk better.

What is Due Care?

Due care is providing just the right amount of care based on sufficient data available. Sometimes, due care is also defined as sufficient care, implying a person hasn’t been careless and hasn’t violated any laws.

Apart from legal terms, due care focuses on whether or not someone’s actions didn’t contribute to harm or violate the law.

In due care, organizations focus on whether or not a customer did something they were supposed to do. 

What is Due Diligence?

Due diligence has a significantly different meaning than due care. Due diligence focuses on what a reasonable person would do based on the type of situation they’re in.

What is Due Care in Cybersecurity?

Due care in Cybersecurity means taking reasonable steps to protect your business’s reputation, finances, and legal interests. Based on some most common cybersecurity frameworks, you can set some basic due care practices, such as:

  1. Know Your Assets

It’s impossible to protect devices and users that businesses don’t know exist. To ensure you’re taking the right due care steps, you need to catalog all these:

  • Data assets, including PII and IP.
  • Storage locations, including on-premises and cloud.
  • Devices include IoT devices, routers, and switches.
  • Your users.
  1. Build Your Custom Cybersecurity Policy

Every brand should have a cyber security policy to protect its users and themselves from online fraud. Before you write your policy, you should make a list of all the weak points in your organization. A risk assessment can help you build a policy that can prevent cyber fraud.

A great cybersecurity policy should outline the responsibilities of senior management and the board.

  1. Continuous Monitoring

Fraudsters love to evolve their techniques. They keep finding new ways to bypass security measures. To protect your organization from these developing measures of fraud, you need to continuously monitor the cybersecurity measures set in place. 

As a part of the process, you need to make sure your team also becomes aware of new risks and weak points in the system. 

  1. Build Incident Response Process

Cybersecurity risks can and will happen. Creating, testing, and reviewing your threat response process means you’re taking cyber security seriously. 

You have to make sure that the response team includes all the right people, and that there is a minimum response. 

  1. Create an Audit Trail

To protect your organization from risks, you need to build an audit trail. Almost every cyber security or privacy law requires organizations to undergo independent assessments of their programs.

What is Due Diligence in Cyber Security?

Due diligence in cyber security is the process of identifying cyber risks that come with third-party vendors. Due care means managing the risks your organizations have control over. Due diligence on the other hand focuses on managing risks that third-party vendors bring to your organization’s ecosystem.

To build a great due diligence process in cyber security, follow these steps:

  1. Identify Your Vendors

Vendor fraud is one of the largest types of fraud that businesses come across. Not conducting “Know Your Vendor” while vendor onboarding can lead to fraud risks. Use DIRO vendor verification technologies to verify:

  • Contractors
  • Cloud services providers
  • Operating systems
  • Applications

Having a full image of the process can help you prevent vendor fraud.

  1. Build Vendor Risk Management Policy

Similar to a cyber security policy, businesses need to build a vendor risk management policy. Your policy should include:

  • Defining appropriate controls
  • Setting metrics for measuring third-party compliance
  • Continuously monitoring vendor security posture
  1. Monitor Continuously

A primary part of vendor fraud management due diligence is knowing the potential security risks your vendors pose. Before you onboard a vendor, you should do a risk review that includes verifying vendor identity. 

Once you’ve onboarded vendors, it’s essential to ensure you monitor them continuously to ensure they don’t do anything they’re not supposed to be doing.

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Know Your Customer’s Customer

KYCC - know your customer's customer

KYCC is a great way to protect your business’s reputation and protect itself against financial crimes.

KYC (Know Your Customer) protocols are too common and are known by almost every regulated business. But, have you thought about the level of risks your customers’ customer present to your business? The type of products and services your customers provide will decide the type of customers they have. Based on the number of customers, you may face unique risks.

When you comply with the Know Your Customer’s Customer (KYCC) process, you can protect your business from potential threats that come up.

What is Know Your Customer’s Customer (KYCC)?

KYCC is an additional compliance method that businesses can employ. KYCC goes a step beyond ordinary KYC or KYB methods. It is the most similar to the Know Your Business (KYB), process. It involves you doing a close analysis of our business’s customers.

With KYCC, you have to evaluate your business clients. You have to go past your business’s clients and see who they work with. Based on your customer’s customer base, your business could be exposed to new and unique threats.

The primary goal of KYCC is to:

  • Confirm that businesses that are your customers are actually who they claim to be. By verifying their accounts, you can be a bit more confident that you’re dealing with an actual business, not some fraudster.
  • KYCC allows you to identify if any of your customers are offering their services to shell companies, or high-risk companies.

Importance of KYCC

KYCC measures can protect your business, customers, and the economy against tax evasion, terrorist financing, money laundering, etc. Without proper regulations, these crimes can grow at an alarming pace. 

KYCC procedures are not widely regulated across the globe currently. But, these regulations are becoming a standard. The 5th and 6th Directives in the EU and FinCEN have indicated a deepening interest in KYC, risk, and compliance. 

As new regulatory bodies continue to understand the importance of KYCC, it’s expected new regulations will soon be announced. If customers discover your businesses have facilitated illegal activity, it’s going to hurt your reputation. When you implement KYCC protocols, you’ll be able to identify these issues and reduce the level of risk associated. 

KYCC is more crucial for high-risk industries, such as finance. That said, any business can benefit from the reputational benefits of KYCC.

What Does KYCC Look Like?

KYCC looks a lot like KYC. The only big difference is that you have to verify your customers’ customers. Similar to KYC, there are some basic steps in KYCC:

  • Identification – In this step, businesses have to identify and verify the identity of each of your customers’ customers.
  • Due Diligence – This step involves checking sanctions lists, account history, and other information to make sure your customer’s customers aren’t involved in illegal activities.
  • Ongoing Monitoring – It is where you implement measures to find illegal activities. Businesses have to take action to handle the task accordingly.

How to Start Implementing KYCC?

To begin KYCC, you’ll first need to ask your customers to provide a list of their customers. If they’re not comfortable sharing this information or are hesitant to share it, you may have to teach your customers about the benefits of KYCC.

When you have the information, you’ll have to collect all the necessary information to do KYC checks on these individuals. To be able to perform KYC checks, you’ll need to collect information and data from multiple sources.

As your customers conduct business, they’ll add new clients to their list. It’s essential that KYCC becomes an ongoing process. This way, companies will be able to detect any suspicious activity as soon as possible.

Despite the efforts, a thorough KYCC process improves both your and your customer’s businesses. It helps businesses raise their reputational standards, establish improved compliance methods, and increase trust and safety. 

How to Protect Your Business with Proactive Implementation?

You can protect your business by implementing KYCC measures. But, you should only do this if other compliance methods are already fulfilled. While the measure is not too important currently, in the near future regulatory bodies may come up with new regulations.

By implementing KYCC in place today, you can proactively protect yourself from financial crimes such as money laundering. You’ll also be able to protect your business against reputational risks and avoid legal troubles that come along.

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KYC and AML Risk Assessment for Customer Onboarding

kyc risk assessment

When onboarding new customers, financial institutions must balance the need to mitigate risk with the necessity to keep the customer experience frictionless. To that end, AML/KYC risk assessment is critical for onboarding new customers. Indeed, financial institutions are under increasing pressure to meet regulatory standards while making the customer onboarding process frictionless. The combination of digital and mobile technologies makes it easier than ever for customers to open new accounts.

As a result, financial institutions must maintain strict Know Your Customer (KYC) and Anti-Money Laundering (AML) standards while streamlining the onboarding process for new customers. In this article, we’ll explore different onboarding methods and how they impact your institution’s KYC/AML risk assessment.

What is AML/KYC Risk Assessment?

KYC/AML is an acronym standing for “Know Your Customer” and “Anti-Money Laundering.” These are compliance regulations that require financial institutions to verify the identity of their clients. This is done to prevent money laundering and other financial crimes. KYC is a procedure that requires financial institutions to collect and verify information about their customers. This data is then documented in an effort to prevent money laundering and terrorist financing.

KYC regulations are designed to strengthen the integrity of the financial sector and the wider economy by reducing crime and increasing trust. AML refers to the regulations that govern financial institutions’ due diligence when determining the source of their customers’ funds. For example, financial institutions must verify the source of funds deposited in accounts by customers who are opening new accounts. This is done to prevent money laundering.

Digital Customer Onboarding Methods

Digital onboarding methods are low-touch and mostly occur online. They include onboarding methods such as e-KYC, SMS verification, and OTP verification. E-KYC is the process of onboarding new customers digitally by collecting and verifying their identity and other relevant information. E-KYC uses the government-issued Unique Identification Number (UID) issued by the Indian government.

Once verified, the e-KYC process provides an electronic validation of the customer’s identity. This electronic verification is stored in an electronic format and is used to onboard new customers, transfer funds, and open new bank accounts.

E-KYC is the most common digital onboarding method. It is used by banks across the world to onboard new customers. SMS verification is a low-touch onboarding method that telecom companies commonly use to onboard new customers.

Manual KYC/AML Risk Assessment

Manual AML/KYC risk assessment is a low-to-moderate touch method that relies on a combination of digital and manual methods. It is an onboarding method that requires an initial review of customer information and documents that is followed by a final review of all customer information and documentation.

A manual review is necessary in order to accurately complete KYC/AML compliance. Manual KYC/AML risk assessment is the most common onboarding method. It is used by large money transfer companies and financial institutions that have large volumes of new customers. Manual AML/KYC risk assessment is conducted by an employee and typically involves reviewing documents such as passports, utility bills, and letters of employment.

This method is necessary to complete the full KYC/AML compliance for customers. Manual KYC/AML risk assessment is the traditional way that financial institutions onboard customers. It is done by reviewing customer information and documents by an employee. This process is necessary to complete the full AML/KYC compliance for customers.

Computerized AML/KYC Risk Assessment

Computerized KYC/AML risk assessment is a high-touch method that involves the use of technology to onboard customers. It is an onboarding method that uses technology to identify and verify customer information and documents. This onboarding method is often used by large financial institutions with high volumes of new customers.

Computerized KYC/AML risk assessment is done by an online system that uses algorithms to screen and filter documents. The system uses algorithms to identify common information found in identity documents such as passport numbers, birth dates, and driver’s license numbers. This onboarding method uses preloaded customer information to verify identity and collect the necessary information.

Computerized AML/KYC risk assessment is a high-touch onboarding method that relies on technology to collect customer information and verify identity. This method is necessary to complete the full KYC/AML compliance for customers. This method is used by large financial institutions. It is the most efficient way to onboard new customers.

Combination of Digital and Manual AML/KYC Risk Assessment

Co-editing is a high-touch method that uses both digital and manual methods to collect and verify customer information and documents. This onboarding method uses both technology and employees to collect and verify customer information and documents. Co-editing is a manual onboarding method that relies on employees to verify customer information and documents.

It also uses software to filter information and documents. Manual KYC/AML risk assessment is the most common onboarding method. It is done by an employee and typically involves reviewing documents such as passports, utility bills, and letters of employment. This method is necessary to complete the full AML/KYC compliance for customers. Co-editing is the most efficient way to onboard new customers.

Conclusion

KYC/AML risk assessment is critical for onboarding new customers. When onboarding new customers, financial institutions must balance the need to mitigate risk with the necessity to keep the customer experience frictionless.

To that end, AML and KYC risk assessment is critical for onboarding new customers. Indeed, financial institutions are under increasing pressure to meet regulatory standards while making the customer onboarding process frictionless. The combination of digital and mobile technologies makes it easier than ever for customers to open new accounts. As a result, financial institutions must maintain strict KYC and AML standards while streamlining the onboarding process for new customers.

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Enhanced Due Diligence: How Important is it for Banks?

enhanced due diligence

In today’s business and regulatory climate, a business has to take all precautionary steps to prevent fraud. This means identifying and verifying customers’ identities and meeting KYC guidelines. Whenever a financial institution starts a new business partnership with individuals or organizations without fully knowing their past and present business dealings, it can open the business to huge lawsuits and fines. EDD (Enhanced Due Diligence) can help businesses understand their customers.

As a matter of fact, over the last decade, over $26 billion in fines have been imposed across the U.S., Europe, APAC, and the Middle East against financial institutions for KYC/AML. But KYC compliance goes beyond ticking some checkboxes. KYC helps financial institutions understand and serve their customers in a better way.

The KYC process is often carried out by financial institutions while opening new accounts with online users. Customer Due Diligence (CDD) is a vital part of KYC verification, which usually involves background checks to assess the risk they pose to a business. In the financial sector, this usually involves verifying the users for creditworthiness and ensuring that these people aren’t on a money laundering or counter-terrorism financing watchlist.

Fortunately, most of these verifications and AML verification processes are becoming automated so businesses can offer a better customer experience during onboarding. With Customer Due Diligence (CDD) financial institutions perform important checks.

What is Enhanced Due Diligence?

(EDD) Enhanced Due Diligence is part of the KYC verification process that offers a greater level of scrutiny of potential business partnerships and highlights risks that can’t be detected by customer due diligence. Enhanced due diligence requirements are an upgraded version of CDD that looks to establish a better level of identity verification by using customer ID data and evaluating the risk category of the customer.

EDD is specifically designed for dealing with high-risk customers and large transactions. These customers and the transactions they conduct pose greater risks to the financial sector, these customers and transactions are continuously monitored to ensure that nothing is out of place. 

There are several characteristics that EDD from regular KYC policies:

  • Rigorous & Robust: EDD policies have to be rigorous and more robust and should require more data for customer authentication.
  • Detailed Documentation: The EDD process has to be documented in detail, and regulators should be able to have immediate access to enhanced due diligence reports.
  • Reasonable Assurance: EDD requirements require “reasonable assurance” while building a risk profile. 
  • Going Through PEPs: Banks and financial institutions need to pay attention to Politically Exposed Persons (PEPs) lists. People on these lists are viewed as being a higher risk because they are in positions that can be exploited for money laundering. 

Another major challenge with EDD is knowing how much information is there to collect. Regulators have consistently favored financial institutions that leverage documented policies & procedures.

More and more companies are combining online identity verification and automated AML screening during the account onboarding process.

KYC Factors for Enhanced Due Diligence

To make sure your enhanced due diligence process is on-point, you need to pay attention to a number of factors. 

These factors include:

  • Location of the business/individual.
  • Purpose of the business transactions. 
  • Occupation and nature of the business. 
  • The pattern of activity (transaction type, dollar volume, and frequency).
  • Expected origination of payments and method of payment. 
  • Document of incorporation, partnerships, and business certificates. 
  • Understanding the customer base. 
  • Ultimate Beneficial Owner Verification. 
  • Information about personal and business relationships. 
  • AML policies are set by the business in place. 
  • Third-party documentation. 
  • Reputation in the local market. 

There are some cases that demand EDD verification. In Europe, banks and financial institutions are required to conduct EDD for businesses operating in high-risk countries. 

The requirement also calls for EDD of Politically Exposed Persons. The new 6AMLD compliance has put additional pressure on financial institutions to conduct more vigorous verification. Negligence or non-compliance can lead to hefty fines. 

This pressure has only increased after sanctions on Russian Companies. Banks and financial institutions have to be extra careful about who they onboard. 

In April 2022, the Office of the Comptroller of the Currency put additional light on the need for thorough EDD policies. These include:

  • Maintaining an accurate and complete list of sanctioned companies and high-risk counties. 
  • Evidence of transactions, which includes unexpected activities, and unexpected sources of funds. 
  • Complete analysis of available information. Including red flags in information and making a document of high-risk indicators and suspicious activities. 

Enhanced Due Diligence Checklist

So, what do banks and financial institutions get out of using EDD as part of their KYC verification process? Here’s the Enhanced due diligence checklist:

1. Better Serve Your Customers

The EDD and identity verification process offer a bunch of useful information regarding your customers, including employment status, age, and so on. This data can be used to provide customers with better services.

2. Enhance Brand Reputation

Whenever a bank, or financial institution onboards a new customer with EDD, they can help in the prevention of corrupt politicians, criminals, and terrorists from entering the ecosystem. This also means that taking precautions to know your customer at a more fundamental level.

Businesses need to build robust safeguards that help in defending against losses for fraud, non-compliance fines, and loss of brand reputation.

3. Financial Crime Prevention

All the ideas of knowing your customers, verifying identities, making sure they’re real, and cross-referencing customers from PEPs and Sanction lists. Enhanced due diligence and other fraud prevention methods such as bank account verification software allow businesses to focus on scaling their businesses instead.

4. Build Trust

Unfortunately, as more and more cases of data breaches, money laundering, and financial fraud are being uncovered, customers are losing trust in the banking sector. It is high time for banks, financial institutions, payment providers, and others to stop the flow of money laundering and other financial crimes. 

This can happen by integrating identity verification and identity screening technologies into the KYC workflow. With a secure digital-first approach, it is possible for banks to digitally onboard customers from all over the world. While ensuring security and enhancing a positive customer experience.

Measures for Enhanced Due Diligence

Let’s say there’s a client that needs EDD verification, what will you do? Instead of going through the process without proper knowledge, you can take some measures. A lot of financial institutions follow de-risking strategies, but that’s too much hassle for legit companies.

The FATF recommends following a risk-based approach for high-risk customers. In a risk-based approach, the amount of information required increases when the level of risk associated with the business increases. 

The risk-based approach offers several other advantages for financial institutions. Entities can scale it up or down based on the size and scale of the business. It is highly flexible and can adapt to changing conditions, technology, and other factors. 

According to FATF, financial institutions must follow some particular steps while conducting EDD, such as:

  • Institutions should try to gather as much information as possible about a customer. They should use this information to build an ideal risk assessment profile. 
  • Should conduct additional searches to get more information about individual customer risk assessment. 
  • Should build a thorough report on the customer or beneficial owner to better understand the level of risk involved. It is possible that the beneficial owner is part of criminal activities.
  • Institutions should build a number of questions that help them collect additional information about the customer. The questions should also try and uncover the intended nature of the business relationships.

Also, it’s not enough to run checks just once, EDD is an ongoing process. To make sure banks stay on top of all the risky activities, they need to keep track of high-risk customer activities. 

Requirements for Beneficial Owner EDD

To make sure that you’re covering all the bases, you need to verify the identity of the beneficial owner. Often, institutions forget or neglect the need to verify the beneficial owner. This can put them at greater risk of financial crime.

UBO verification is slowly becoming a vital part of EDD. If an account holder does some international transactions, institutions need to know the beneficial owners of the other account holder. This is to comply with the OFAC (Office of Foreign Assets Control). The OFAC requires banks to conduct due diligence of international accounts at the time of transaction. 

Due to the FCPA ACT, an institution has to identify the owner of all the third-party intermediaries. A company can’t comply with regulations properly until they thoroughly check the beneficial owner information. 

 The 4AMLD states that all the member states have to ensure that all the entities are incorporated within their territory according to national law. They need to collect all the vital information about the beneficial ownership alongside all the basic information about the entity itself. 

In the US, there are similar beneficial ownership disclosures that are a part of the FinCEN Customer Due Diligence Final Rule. As per the FinCEN Guidance FIN-2016-G003, “the CDD Rule outlines explicit customer due diligence requirements and imposes a new requirement for these financial institutions to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions.”

The FATF did an analysis of the beneficial ownership best practices, and they concluded that the challenges with tracing UBO information while dealing with foreign ownership or directorships suggest the requirement for enhanced measures for these entities.

Procedure for Ultimate Beneficial Ownership Verification

Up until a couple of years ago, verifying beneficial ownership was a challenging and cumbersome process. It included a lot of manual work which led to mistakes. Business entities had to submit official documents to financial institutions.

Businesses that had to go through additional due diligence have to provide other documents based on their level of risk.

Some common examples include:

  • Official company documents from the official registry to verify information submitted by the account holders. 
  • UBO identification and verification.
  • Performing KYC checks on ultimate beneficial owners. 

With the help of DIRO’s ultimate beneficial ownership verification, financial institutions can now say goodbye to old manual methods.

DIRO can instantly verify incorporation documents with automated user consent in over 195 countries. It helps in eliminating fraud in merchant onboarding and complying with vendor due diligence rules. Moreover, banks can use it for UBO identity verification and cut down on the risk of UBO fraud. 

Conclusion – Growing Need for EDD

Changing regulations and policies are increasing the need for enhanced due diligence. As the scope and need for due diligence requirements are growing, the need for technologies that can handle these requirements is also growing. DIRO document verification and KYC verification solution can help institutions stay on top of these changing requirements with instant and accurate document verification.

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KYC Requirements in Singapore in 2022

kyc regulations in singapore

Singapore is one of the world’s leading financial hubs and also one of the Asia-Pacific leaders. So, it makes sense that businesses all over the globe want to invest in the Singapore markets. Economic stability makes it an even better option for investors globally. Singapore for years has been following a pro-business attitude that encourages global trade.

Anyone wishing to do business or onboard Singapore customers must follow the clear and robust KYC and AML guidelines. These KYC guidelines Singapore are set by regulatory bodies in Singapore to prevent ID theft fraud and the rise of money laundering.

KYC Regulations Singapore as Set by MAS

The KYC guidelines Singapore are built and implemented by the “Monetary Authority of Singapore (MAS).” And the Singapore KYC requirements specify that digital verification is acceptable, but businesses have to take appropriate measures, these include:

No verification is needed until a customer moves forward with the account opening process. This is only applicable if there are internal policies that limit access to financial services before customer verification is complete.

Singapore Digital Identity System

Singapore has one of the best digital identity systems. The Singapore digital identity system completely relies on mobile apps and biometric data to make the onboarding process faster.

Citizens of Singapore can use the Singpass app to sign up for a government and private sector services. Singpass is connected to Myinfo (a service that provides verified personal and corporate data) which leads to the remote signing of the documents. 

There’s also a step beyond customer identification, that is the general KYC rules such as due diligence and customer monitoring.

If a customer is on the PEP list or poses a greater risk for money laundering, then an enhanced due diligence level is required. Even greater levels of due diligence are needed if:

  • Transaction activities change
  • The institution changes document standards
  • Lack of appropriate identification information
  • There’s a physical change in relations with the customer

Beneficial Ownership Verification in Singapore

The steps to verifying businesses and beneficial owners lie outside the basic KYC and CDD norms in Singapore. Any director, partner, or entity that has executive-level control over the organization’s operations is considered a beneficial owner. Identities of these beneficial owners have to be identified by businesses.

The Digital identity system in Singapore can also help in hastening this process. Myinfo Business app can automatically provide verified business information and beneficial ownership information data. The app can do this by fetching data from government sources.

An additional level of due diligence is required only if there are any changes in the ownership.

Payment Services Act in Singapore

The Payment Services Act in Singapore undertakes the Licensing and regulation for all the payment service providers. Organizations that have to follow these rules include:

  • Domestic money transfer services
  • International money transfer services
  • Account creation services
  • Merchant acquisition services
  • E-money issuance services
  • Digital payment token services

The biggest impact of these regulations is on entities operating the crypto and the NFT industry. Any entity that works in buying and selling digital assets, offers token exchange, or promotes these services may fall under the payment services act in Singapore.

Payment providers have to be ready to fight money laundering in advance. They should build money laundering prevention systems to combat fraud. Also, all the customers need to go through identity verification.

Low-risk customers need to go through simple due diligence, but customers with high risk have to go through enhanced due diligence. Other methods of risk prevention include Watchlist screening, transaction monitoring, and recording and reporting of transactions that seem suspicious. 

There’s one more regulation that payment companies operating in Singapore have to follow. The regulation is known as Financial Services and Markets Bill also called FSM Bill.  

The goal of the FSM bill is to minimize the risks by licensing the payment service providers and imposing AML/CFT requirements.

State of FinTech Industry in Singapore

Even though the population of Singapore is just 5.9 million, it has 132 banks. Plus, there’s a boom in the FinTech industry in Singapore. In 2021, the investments in the FinTech market rose by 37%. Moreover, the total amount invested in 2021 left China and India behind. 

Singapore is a great platform for companies that want to gain a firm footing. Plus, it can be the perfect place to expand service globally. Singapore is working towards Crypto adoption, which will only boost the financial situation of the country. Currently, the financial environment is highly secure because of the KYC requirements in Singapore.

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What Is The Importance of KYB and Ultimate Beneficial Ownership (UBO)?

Know Your Business (KYB) and UBO

Today’s topic is Know Your Business (KYB) and Ultimate Beneficial Ownership (UBO). We will also understand the need and the importance of KYB – know your business and Ultimate beneficial ownership. 

There are B2C companies that follow various steps to verify their customers’ identities. This is known as the Know your customer (KYC) process.

Other businesses and financial institutes are obligated to do the same verification process for businesses they onboard. This process is also known as Know Your Business (KYB) or Business Risk Assessment. In the past few years, the need for KYB regulation has been changed by the Financial Action Task Force (FATF).

What is Ultimate Beneficial Ownership (UBO)? 

UBO is a beneficiary or a legal entity that is responsible to verify the identity of the customers and ensure that it is not fake. The Ultimate Beneficial Owner also gets the profits for businesses, this is why financial institutions need to identify UBO’s identity. 

UBO verification plays an important step in Know Your business verification and provides relevant information to decide whether FIs should onboard specific businesses. This helps to reduce the chances of various frauds and financial losses. So, you know the importance of Know Your Business. 

When it comes to UBO, the United States FinCEN (Financial Crimes Enforcement Network), the European Union’s 4th and 5th Anti-Money Laundering Directives, and the CDD rule, all are intended to guarantee a better way to assess risks that would be helpful to strengthen the anti-money laundering measures.

What is the Customer Due Diligence Rule? 

The FinCEN Customer Due Diligence rule has four fundamental requirements to ensure the transparency of the financial Institutes and to detect any mishaps related to this: another step that explains the importance of know your business. 

Here are the four key requirements:

  1. The identity of the users and the customers is verified. 
  2. The account of the beneficial owners is verified. 
  3. To verify and identify beneficial owners who own 25% or over 25% of a legal entity. 
  4. Developing a customer risk profile for a better understanding of the customer relationship, customer purpose, and customer nature. 

What is the Importance of Know Your Business (KYB)? 

This process helps various businesses to catch the upcoming risk related to the business and their customers or clients. 

This process also helps the regulated entities and banks to stay compliant with the industry regulations.

When we talk about the importance of Know Your Business (KYB), we are trying to say that it is crucial to identify deterring frauds and to protect businesses from mishaps that can lead to huge financial losses. 

This process includes verification of the documents related to the bank records, incorporation, and the source of wealth. And, various KYB platforms are helpful for the businesses to create records with the UBOs and to get access to the databases. Best KYB platforms also help to perform KYC on the UBOs (as an individual) and the operational workflows, and investigation to track the data. This helps to get access to the information for the brief analysis, relevant parties and reporting by regulators. 

As per the regulatory requirement, maintaining a robust compliance program (with KYB) and using risk mitigation strategies with proper due diligence for UBOs is necessary to prevent your business from nefarious intent and also a regulatory requirement.

How does DIRO Play an Important Role in Know Your Business Process? 

It is crucial for business and financial institutes to maintain the integrity of their organization, firm, or institute without neglecting the compliance regulations. This also includes managing and detecting the risks related to the businesses and financial institutes.

DIRO online document verification technology can play a vital role in reducing the load of the verification process in KYB, and UBO verification processes. This is crucial to avoid identity theft and various other financial threats.

DIRO document verification technology provides a quick way to verify incorporation documents, bank accounts, business documents, utility bills, credit bureau reports, tax returns, etc.

DIRO also helps to ease the KYB compliance process with the real-time document verification solution. We as DIRO also assist with UBO identification and shareholder information.

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Steps to Streamline KYB Process

Streamline KYB Process

To ensure the success of a business and the elimination of fraud, effective KYB measures need to be established throughout the organization. The Know Your Business (KYB) process begins with the onboarding of corporate clients and since the pandemic, the integration of digital solutions has become a vital step for KYB compliance.

Regardless of the usefulness of digital services in keeping up with regulations, businesses operating in the financial industry are reluctant to rely on technologies. Countless studies point toward the fact that focusing on a solely paper-based process for onboarding clients hurts businesses in the long run. Regulatory bodies all over the globe are encouraging businesses to take the first step toward digital transformation.

While digital transformation isn’t easy to achieve, with the integration of DIRO’s online document verification software, the process can become faster, efficient, and seamless. With DIRO, it can be easy to comply with regulations, perform due diligence checks and reduce friction from the customer onboarding.

What is Know Your Business Regulation?

KYB is the pass or fails point of a new relationship with a corporate client. KYB compliance came into existence because of some loopholes in the older KYC (Know Your Customer) compliance. With KYB, businesses can verify the clientele and figure out the risk factors in the initial stages of a relationship. The KYB regulation covers all the legal and regulatory processes when onboarding a new client. 

Usually, there are 4 main steps of KYB verification:

  • Document collection and verification
  • Data assessment
  • Continuous monitoring
  • Reporting and intelligence

Companies need to do their due diligence to figure out any criminal activity like money laundering and terrorist funding. It is vital to understand that KYB is not a one-time audit but an ongoing process that requires continuous monitoring to verify that everything is squeaky clean.

3 Ways Traditional KYB Hurts Your Business

  • Traditional KYB methods require tons of resources, financial institutions need to have a dedicated team who are slowed down by outdated processes. In most cases, corporate clients can take months to successfully onboard. 
  • Human error is part of business operations and when handling huge amounts of data and information, mistakes happen, exposing businesses to major risks. 
  • The biggest challenge of the KYB process is keeping up with the ever-changing regulatory landscape, especially when numerous countries are involved. The rules and regulations of the KYB process are complicated and ever-changing. Top banks can also have some blunders, which can lead to reputational damages.

How to Streamline the KYB Process During Corporate Onboarding?

Technology is ever-evolving and with the help of the right technologies, you can help future-proof your business. The need for KYB regulation is growing, not just because of the regulatory requirement, but because the ability to onboard clients is essential.

The traditional KYB processes can be improved through numerous automated verifications, AI, and data assessment. All of it can be done faster than a person ever could. Automations allow companies to react quickly and work in accordance to enforce compliance procedures without having to spend more on their teams. 

This, in turn, helps in delivering an experience to the onboarding that is more secure, convenient, and sustainable. According to a recent report, companies that achieved successful KYB compliance save an average of $1.45 million per year in compliance costs. 

Building an in-house KYB digital onboarding system from nothing is super expensive, time-consuming and there’s a lot of room for error. With the integration of DIRO online document verification software, businesses can effectively comply with KYB regulations and mitigate the risk of financial fraud.