BBVA API Market
Knowing your customer is an essential asset in any business relationship, and it is even more crucial in the digital realm. In the financial sector, there are increasingly more procedures to ensure the verification and operations of clients. One of these processes is KYC.
The acronym KYC stands for “Know Your Customer,” which translates to Spanish as “Conoce a tu cliente.”
Know Your Customer is a policy widely adopted by financial entities to verify the identity of clients and thereby comply with the various regulations that govern these activities. The objective is for the client to prove their identity and apply a series of controls to prevent illegal activities such as corruption or money laundering.
The financial entity must ensure that the identity of said client is real, understand the nature of the operations they will carry out, and also share this information with the Administration.
Therefore, KYC is an increasingly important process and is constantly evolving, especially in the current digital context. Although it is applied in different sectors, in banking it is a very rigorous and reliable process, as it is strictly regulated.
Know Your Customer (KYC) processes are fundamental for banks, as they allow them to obtain and verify the personal information of clients and classify them according to their risk level. This practice is important for several reasons:
Additionally, as it is a digitized process:
In the banking sector, where this procedure has been mandatory for years, most clients have completed the KYC verification in person. Therefore, the data and documents presented are checked firsthand by a representative of the entity. However, in recent years, the option to carry out the KYC identity verification online has also been enabled.
For example, identification can be done through a video call in which the user shows their identity documents and verifies their authenticity with facial verification. Technological advances also allow for the incorporation of other biometric tests, such as fingerprint identification or facial recognition tests.
Currently, with digitalization, any industry can benefit and support its protocols with user verifications already carried out by the financial entity, which provides added value compared to other identification systems where the information is not verified. To this end, there are banking tools or APIs for KYC that streamline this process.
These are the main benefits that financial entities obtain by using KYC:
KYC is not a static process. Although it is essential to prove identity at the beginning of the business relationship, it is also necessary to maintain a continuous process that causes minimal inconvenience. On the other hand, open banking uses KYC to ensure the identification and verification of users when securely and controlled sharing of their financial data.
Banks have to comply with legal requirements, and for this, they may request the end client to provide documentation at any time. This generally occurs when we have not submitted a document or if unusual activity is detected in the accounts, especially any significant movements.
In addition to the verification of documentary sources provided by the clients themselves, banks also cross-check the information with external sources such as numerous external blacklists and public databases, as well as collect and integrate the necessary external data with internal systems.
Another aspect is that customer due diligence (CDD) is also crucial, as it includes periodic checks and constant monitoring of the collected information.
Finally, it is important to comply with the regulations, and their implementation should cause the least possible inconvenience. Although KYC requirements are strict and create many challenges for a financial institution, the consequences of not complying with these standards can be severe.
The KYC process is fundamental to establishing secure and reliable relationships between banks and clients, and it is also crucial for complying with current regulations and laws designed to prevent fraud, money laundering, and terrorist financing. These regulations vary according to the jurisdiction of each country but share the common goal of ensuring transparent and secure financial transactions.
In Spain, the Bank of Spain establishes that banks and financial institutions are obliged to implement KYC practices that allow them to gather the necessary information from their clients and adopt the necessary measures to verify the accuracy of such information.
KYC and AML (Anti-Money Laundering) are intrinsically linked when it comes to identifying fraud and preventing risks associated with money laundering and terrorist financing. These regulations require rigorous verification of the client’s identity and continuous assessment of their activities. This integration is one of the European Union’s measures against AML.
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