The Process of KYC and its Future in an Evolving World

January 2020
Complying with KYC does not entail one single check, but rather, is a series of processes that combine to ensure the verification of an individual’s identity and the analysis of their suitability to use financial services. The main stages that make up this process are identification, Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD).

A financial institution’s KYC and AML compliance strategies need to begin by establishing that the identity of the individual applying to use its services is a valid identity; not one that has been stolen, is being used fraudulently, a fake identity or one that is prohibited from using its services. The requires the gathering personal information from customers, including data such as the customer’s name, age and address, with documentation such as a passport, national ID or driving license being used as proof. 

Due diligence is then carried out when the authenticity and veracity of gathered information is checked against databases and sanctions lists and watch-lists to determine if the information is valid and if the person is eligible to use the services offered. Any associated risks are calculated and simplified due diligence may be applicable in low-risk situations. Whilst the level of detail and investigation required depends on many things, such as the size of accounts under consideration, services being offered, or geographical location, this process is often long and arduous for both business and customer, and costs a considerable amount, especially when considered on a global scale. 

In certain situation, where a high risk of money laundering or terrorism financing is possible, Enhanced Due Dilligence may be required, necessitating the acquisition of additional, more detailed information on the customers involved before determining if they can use the services offered. This categorisation could be applied to those from certain areas, businesses, or politically-exposed people. 

Beyond these initial checks, ongoing monitoring is required to make sure that any change in circumstances does not alter the customer’s risk profile or eligibility to use financial services. 

And it's not just individuals that need to be checked. On a higher level, companies and businesses need to be identified and vetted in the same way to ensure no criminal activity is taking place. 

These KYC and AML procedures have been in place for a number of years now, and have evolved over time to deal with new situations and technology. However, new businesses, services and environments are arising from technology that is being researched and developed currently, which will bring a whole host of new issues for KYC and AML.

As the world becomes increasingly digital and connected, many more pitfalls, threats and avenues for malicious actors to take are opened up. This has been seen numerous times with data theft, hacking of software and compromised devices. The future of commerce and financial services does not just concern humans and companies, but also smart devices and even objects.

In order for smart devices to operate independently or for automation to be facilitated on a widespread level (as will be necessary for meaningful smart ecosystems and the Internet of Everything), all aspects of the ecosystem: humans, businesses, devices and objects, will require their own identities in order to be able to satisfy KYC and AML regulations in any meaningful way. Even more than this, all actors in a digital system will need their own identity anyway to be able to interact; imagine trying to communicate online without usernames or email addresses or other identifying options.  

Financial services are a part of everyday life and KYC compliance already represents a significant time and money investment for those in the industry which aims to serve the ~7.8bn people in the world. Given that by the end of the year it is estimated that each person will have between 6 and 7 connected devices on average, it becomes apparent that applying current KYC and AML regulations to the estimated 50bn connected devices, will become problematic and cost prohibitive. And this problem will only grow. 

This is the issue that Blockpass is solving. By providing a faster, cheaper, secure and comprehensive KYC solution, we are alleviating the cost and headache that comes with the necessary regulatory compliance. Our current KYC Connect® Mobile App solution allows for companies to collect and analyse the necessary KYC data, providing customer management tools and ongoing monitoring through our merchant dashboard.

Whilst we began with providing a solution for human KYC, we have already expanded to providing corporate KYC solutions, and are working on solutions for devices and objects as the reality of a truly connected world draws ever closer. We will be prepared for the explosion of KYC and AML needs with a holistic, effective, efficient, secure and interoperable solution for people, companies, devices and objects when it becomes necessary and a part of our everyday life.