kyc in banking

KYC in Banking: The Role of Identity Verification in Mitigating Risk and Ensuring Compliance

So far, we have discussed KYC and AML in our previous articles. Undeniably, it is closely related to banking and a mandatory requirement. Today, we shall discuss how KYC in Banking supports the AML and helps in Risk Mitigation. Also, we will be discussing regulations for KYC and AML compliance for banks in detail with real-life examples of a few international banks.

What is KYC in Banking?

KYC (Know your Customer) is a mandatory process for the identity verification of customers when opening up a bank account. Simply, the clients are required to be honest about their identity. Banks might refuse the client for their services or simply report a suspicious client to the authorities. So, KYC and AML compliance is the most imperative part of Banking. Initially, when a bank account is opened, the client is required to verify the identity of a real person. After verification of the identity of the UBO (Ultimate Beneficial Owner), the Bank allows its services to be rendered.

Importance of KYC in Banking Sector

Firstly, the importance of KYC becomes evident in the Banking sector. Apparently, the Banking sector relies on the KYC and AML for the mitigation of FinCrime and secure services to clients. Globally, the banks define their KYC processes to ensure that the Anti-Fraud mechanisms work. Also, risk monitoring and regulating safe and secure finance is another goal of KYC in Banking sector. Following are a few important points related to the KYC process in banking;
  • Customer Onboarding procedures are highly supportive in the prevention of Money Laundering and Anti-Terrorism Activities.
  • Similarly, Electronic KYC (eKYC) uses the latest techniques and procedures that ensure the robustness and effectiveness of the KYC system. ID card verification, Face Recognition, Biometric Verification and Proof of Address are an example of these.
  • Almost all banks need to stay compliant with KYC regulations at all times. Hence, the responsibility of educating the client about KYC compliance lies with the banks.
  • Failing to comply with the KYC banking regulations can lead to serious penalties and fines from law enforcement agencies.

A decade of foundations to implement KYC in Banking

From (2008-2018) heavy fines and sanctions were imposed in the US, the Middle East, European Union and Asia. Mainly, the fines were imposed due to non-compliance with the KYC/AML regulations. An estimate for these fines sums up to $26 Billion within the said period. Moreover, Thales Group revealed that $1.6 billion to $ 4 trillion is laundered by criminals annually in the US alone. Therefore, the KYC and CDD are becoming stricter than before.

KYC Requirements for Banks

Since the inception of KYC in Banking sector, the requirements for clients are regularly modified. Overall, the requirements have a baseline that needs to be followed. Following is the list of documents and other requirements that clients need to fulfill.
  • Passport
  • ID card
  • Driving License
  • Utility Bills (Proof of Address)
  • Facial Recognition
  • Biometric Verification
  • Document Verification
Primarily, banks comply with all these requirements before serving a customer. The requirements can become stricter if the client’s risk level increases.

KYC in Banking: An Indian Bank’s Requirements

The State Bank of India has more or less the same requirements as other International Banks. Here are the documents that SBI requires to open up a Bank account to ensure KYC and AML compliance in India. Basically, these are the initial requirements that every Indian needs to submit for the bank account. There is a second round of verification and other requirements too.

International KYC Banking Regulations

In 2018, The US’s Financial Crimes Enforcement Network (FinCEN) updated the requirements for banks. According to this requirement, the natural persons of a legal entity must be verified for their true identity. Whether they represent an organization or a business entity, the requirement is mandatory to be fulfilled. Likewise, a corporate company needs to provide the SSN (Social Security Numbers), Photo ID and Passports of employees. Also, the BoDs and Shareholders need to submit the same information for opening up the company or individual bank account.

KYC in Banking and Risk Management through IDV

Undoubtedly, Risk Management is one of the most important aspects of KYC banking regulations. Especially, Identity Verification makes the foundation of Risk mitigation and KYC Compliance strategy. Visibly, the dominance of Online Banking and seamless payments has increased the risk of Money Laundering. Globally, the KYC and AML regulators are concerned about Risk mitigation and compliance, especially from the Bank’s side. The issue is more sensitive when it comes to the Bank’s reputation and cases where Banks are found involved in Fincrime. So, The Risk Managers have answered the question with the following four ID verification steps:
  • CIP (Customer Identification Program) Compliance
  • Processing high-risk Transactions
  • Account Originations
  • eCommerce

IDology: Identity Verification & Risk Mitigation

IDology’s survey report showed the following results for the trust and value-based system related to Risk Management:
  • 26% of surveyed organizations use IDology IDV solutions to process high-risk transactions.
  • 60% of the organizations witnessed increased compliance with KYC regulations through IDology, including CIP.
  • 44% of the organizations surveyed experienced a decrease in fraud losses after using IDology.
  • 50% of organizations use the IDology verification process to meet CIP compliance.
Overall, Banks can use such Identity Verification to minimize the Risks of Money Laundering and other Fincrime. Moreover, such Identity Verification systems can increase the efficiency of KYC in Banking itself.

KYC in Banking: Real-life examples


JP Morgan is one of the largest banks in the United States. It uses KYC processes to verify the identities of its customers. Likewise, it monitors their transactions for potential fraud or money laundering.


Globally, a renowned bank with operations in multiple countries uses KYC procedures to comply with local laws and regulations. Particularly, it applies KYC for the prevention of money laundering and the financing of terrorism. HSBC is a name globally compliant and cooperative with KYC financial entities.

The Central Bank of Nigeria

The central bank of Nigeria requires all Nigerian banks to implement KYC regulations to comply with anti-money laundering regulations.

Standard Chartered Bank

Similarly, Standard Chartered, a British multinational bank, uses KYC processes to comply with international and local regulations. Furthermore, to protect against financial crimes such as money laundering and terrorist financing, it is actively participating internationally.


Evidently, one of the largest private sector banks in India uses KYC processes to comply with Indian laws and regulations. ICIC Bank is cooperative regarding anti-money laundering and the prevention of terrorist financing.

Final Thoughts

Banks being a financial entities and operating internationally, need to have a strong KYC/AML procedure. As the risk of Money Laundering and terrorism financing is advancing, the KYC and AML procedures must also be implemented. Especially when it comes to the banks, the regulations become stricter. It is because compliance with KYC in Banking will lay down firm foundations against FinCrime. Finally, the use of Risk Management tools for improved KYC and AML procedures has become a need of the time for banks. Also, identity verification methods must be digitized and improved for fraud detection. For this purpose, the eIDV can supplement the procedures of Banks and facilitate them.

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