KYC processes

KYC Processes for the UK Financial Institutions

Did you know, as per a recent study conducted in 2022 by CoinJournal, the United Kingdom has been found to be the second most prosperous country in crypto, which increased up to 431%, which is approximately $8.16 Billion? Not only this, the UK is considered the largest financial services provider in the world.

According to the Financial Action Task Force, the UK is a global leader in promoting corporate transparency. Thus, there’s no surprise that the United Kingdom holds sturdy KYC and AML compliance regulations. These standards include requirements that financial institutions need to verify their customers’ identities.

However, these compliance laws need banking and financial organisations to perform customer due diligence measures in three steps:

  • Identifying and verifying customers’ identities based on the gathered information and documentation from authentic sources.
  • Identifying and verifying business owners on the basis of risk sensitivity.
  • Acquiring information on the intended nature of the business along with its wealth sources.

Moreover, several additional enhanced due diligence steps are taking place in the case of politically exposed persons.

With the increased Fin Fraud trends in the UK, the country adopts numerous KYC processes for its financial organisations. Thus, in this KYC/AML Guide, we have discussed an entire KYC procedure followed by UK financial institutions to remain compliant with AML guidelines and prevent money laundering.

AML and KYC Processes Requirements in UK Financial Firms

Various legal acts enforce AML in the UK which involve:

  • The Proceeds of Crime Act 2002.
  • The Electronic Identification and Trust Services for Electronic Transactions Regulations (2019).
  • The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

However, compliance standards are monitored by the government regulator FCA, which manages both financial and fintech organisations in the UK.

Usually, the Financial Conduct Authority is considered one of the most contemporary regulatory companies in the world. it acquires standards global AML processes, regulations, and compliances.

In addition, it has also presented numerous new ideas like RegTech to launch a separate regulatory sandbox environment. It also helps boost regulatory coverage of cryptocurrencies and approved automated verification strategies.

How UK Performs the AML and KYC Processes?

UK laws and principles outline the essential elements of a KYC process but do not specify the specific technologies or implementation methods. Typically, the process consists of three main components or stages, which are mentioned below:

User Identity Verification

A customer identification program is the first step towards KYC processes, in which the customer gets verified. The financial institutions gather users’ personal information and documentation to ensure authenticity. Whether the customer is an individual or an entire firm, this step is executed accordingly. In digital or eKYC, this procedure is done online.

Customer Due Diligence

The second step is Customer Due Diligence (CDD) takes the verification process a step ahead. The purpose of this step is to ensure the risk and trust level of the customer. CDD defines the risk level of the client and tells to what extent they can be trusted.

Furthermore, it includes AML screening to analyse whether the customer falls in the Politically Exposed Persons or sanctions lists. Therefore, customers’ addresses are verified as well. However, those clients, who are considered to be at higher risk, undergo further checks under enhanced due diligence.

Ongoing Monitoring

AML and KYC regulations are not only about gathering and analysing user information before client onboarding, but this is all about continuous monitoring. Financial institutions in the UK must have a program for ongoing KYC monitoring and checks. It helps perform further sanction and PEP screenings, and regular transaction monitoring.

What are the Upcoming KYC Trends in the UK?

The upcoming trends in KYC processes in the UK include an increased focus on digital identity verification and the use of new technologies such as biometrics and artificial intelligence to improve the efficiency and accuracy of the KYC process. There is also a growing emphasis on customer data privacy and security, with a heightened need for organisations to protect sensitive information from theft and abuse.

Additionally, there may be changes to the regulatory framework governing KYC, with regulators expected to implement new rules and guidelines to ensure that organisations are adhering to best practices for KYC and AML compliance.

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