risk-based approach

A Risk-Based Approach to KYC and Risk Management: Safeguarding Banks from Fraud

Do you know who your customers are and what are their backgrounds? Well, it is crucial for financial institutions to understand who they're doing business with to avoid any future complexities such as fines, sanctions, and reputational damage. Plus, it's a key way to protect your organisation from fraud and illegal transactions. Therefore, these firms often adopt KYC practices and other risk-based approaches to prevent their organisations from any kind of financial risks and fraud.

Well, Know Your Customer (KYC) practices are vital to run in order to analyse user threats. And, these are the legal requirements to comply with Anti-Money Laundering (AML) regulations. An efficient KYC process helps companies know about their clients' identification, financial history, and criminal background as well.

In this guide, we will give you five risk-based approaches and strategies that will help you implement KYC and risk management to safeguard your financial firm from any kind of fraud.

Why is KYC Important for Customer Verification

Preventing financial fraud 100% could be tough, but these risks can be reduced. How? By implementing enhanced due diligence (EDD) and using digital identity verification. This is a key part of checking customers' identity for compliance and anti-money laundering. Fraudsters would need to bypass this system or give fake information to succeed. Thus, for financial terrorists to be successful, they would need to conquer these measures or provide completely false information about clients.

Five Best Tips to Defend your Banks from Financial Scams

An effective risk-based approach AML can drastically help reduce financial frauds and to uplift business revenue and build trust among customers. Here are some strategies that can help you sustain your users through effective KYC.

   i. Execute Common KYC Tests

Presently, identity theft and identity fraud are major concerns of financial institutions’ clients. As per a report from the Federal Trade Commission, approximately 1.4 Million identity theft reports have been found in 2018 with an economic loss of over 1.8 Billion dollars. Therefore, to prevent these AML risks, companies constantly take some steps to get their firms KYC compliant.

Hence, they run KYC common tests that are crucial for every customer and business. These tests are specifically designed to fight against identity theft and fraud.

   ii. Fight Against Financial Disputes

With the rise of issues of chargebacks, financial disputes have become very common. They often happen because of customer fraud instead of identity theft. Credit card companies have different rules for chargebacks, so it's important to know them.

Prevention is better than cure. Keep track of your payments, so you have proof if a chargeback happens. By showing delivery receipts and invoices, you can support your case and avoid financial loss.

   iii. Understand Onboarding Thoroughly

An effective KYC customer onboarding procedure plays a vital role in building powerful and reliable relationships with your clients. Well, the streamlined onboarding process for clients also helps companies in preventing good and long-term customers from fraud and suspicious clients. Yet, in order to accomplish this task, it is essential to comprehend the KYC onboarding process thoroughly.

This process involves several steps. The first and foremost step is to collect relevant data and identification documents. Then the gathered documents and information are verified by investigating the clients’ backgrounds, financial transactions, criminal histories, and other activities. Further, KYC verification executes mapping of this information against AML risks and other fraud preventions to determine any red flags.

   iv. Improve Verification Measures

Usually, account takeover fraud is another major concern of banks and their users that may cultivate fraud. Therefore, to prevent these frauds, the best risk-based approach is to improve your verification procedures and measures. Well, cyber terrorists and scammers have become smart in breaking into users’ credentials. It means it’s time to go beyond passwords and implement other measures such as biometric authentication and multi-factor verification.

Their innovative technologies help you recognise and verify your clients on the basis of their facial features and other biometric characteristics, which cannot be stolen easily. Besides, according to a 2017 study by Visa, 46% of users find biometrics more secure than passwords and 71% find them easier instead of remembering combinations of letters, numbers, and symbols.

   v. Gather Extensive Data

Another risk-based approach to be implemented to protect against financial fraud is to collect extensive user data. KYC and KYB procedures are particularly designed to fight against these scams such as money laundering and funding terrorism. Therefore, fulfilling KYC standards helps your firm manage risks and boost overall security.

For this purpose, gathering relevant user data is crucial. Once you have collected inclusive information about your customer, you would be able to run the KYC onboarding process more seamlessly and proficiently.


Stay compliant and protect your business from fraud and legal trouble with the exclusive KYC AML Guide. Thanks for reading! It is always advised to keep your information secure and avoid scams by staying compliant with KYC regulations. Our powerful search engine uses advanced algorithms to check if a person or entity is on any watch list. Contact us now to learn more.

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