KYC and Data Protection: How to Manage Customer Data Lawfully

Every day, financial institutions are under pressure to keep up with the changing regulatory environment and increasingly sophisticated tactics used by criminals. They must satisfy customer expectations while also complying with strict standards set out in compliance policies that vary significantly around the world — a task made even more difficult due to their legacy systems which make it hard for them to stay ahead of threats like identity theft or money laundering schemes.

Why is Customer Data Protection Important for any Business?

The business of protecting customer data is serious and it’s important for many reasons. First, if you don’t take steps to keep your customers’ information safe, which leaves them vulnerable. Take care of your customer data if you want to maintain confidence in your company as well as avoid fines from law enforcement agencies or even lawsuits filed against you.

To ensure the security of your customer data, we recommend following these three easy steps:

  • Only collect relevant data Data security is reinforced when the external value of your data decreases. Hackers are less likely to try and steal low-valued information like email addresses, since they won’t gain anything from it other than what’s already available online. This step will prevent any hacking attempt to result in access to more serious personal details such as names/phone numbers etc. 
  • Keep the data visibility low — Each time someone logs in, they are adding another potential entry point into the network which could be exploited by hackers. Limiting access to data means that your organization has fewer points of vulnerability for the attack.
  • Good Password Management — Protecting your passwords is important; it’s best to use encryption when storing them so that hackers can’t read what you wrote and make off with all of your information.

KYC in Banking

Know Your Customer (KYC) laws were introduced as part of the Patriot Act to deter terrorism financing and financial crimes. Fraudulent identities are often used by money launderers, so KYCs require banks to get to “know” their customers well enough that they can confirm whether or not these people claiming fake names really do have access rights only as needed for onboarding purposes.

Money laundering is a serious issue that the US government has been aware of for decades. The Bank Secrecy Act, passed in 1970 and updated many times since then, requires financial institutions to keep records on cash transactions greater than $10K, as well as report any activity they suspect may be related to such tax evasion or other criminal activities.

The KYC Process

To combat fraud and other improper activity related to customers, financial institutions must implement several robust due diligence processes. These include:

  • Identifying the true identity of both parties involved in a transaction; verifiable through appropriate documentation or sources such as social security numbers on an individual level.
  • Risk assessments can help identify vulnerabilities that may put financial institutions at greater risks if not managed properly; this includes things from security measures taken against cyber-attacks to closing practices where funds could have been given out with insufficient checks and balances applied.

Onboarding New Customers

Every customer who visits a bank in person will bring proof of identity, such as government-issued identification (e.g., driver’s license, passport). The banker checks this documentation to physically ascertain that they are who they claim to be.

The information you provide should be enough to verify the identities and activity of your beneficial owners. This may include articles, certified true copies, or other similar documents that establish their ownership stake in a business venture as well as any financial statements detailing profits/losses over time.

Financial institutions are now required to verify the identities of their customers. Does this mean that for any financial transaction, the customer’s digital presence must match what they present in person or through other channels like documents and identity verification such as fingerprints with machine learning algorithms added on top if needed?

Learn more about the Future of Banking technology on Why KYC Policies Are Crucial for the Banking Industry | Jumio.

Regulatory Body of KYC Compliance

The use of mandates to bring digital identity verification and Know Your Customer (KYC) practices into the forefront of businesses across the world has become prevalent. For example, in America, there are banking regulations that stem from the 1970 Bank Secrecy Act as well as the 2001 Patriot Act which was further expanded with new state laws including California’s CCPA compliance rules.

The European Union (EU), Asia-Pacific countries, and other regions have built upon or created their own compliance frameworks to meet the new GDPR regulations. Canada is no exception with its Financial Transactions and Reports Analysis Centre of Canada overseeing anti-money laundering policies in addition to being compliant towards 6AMLD standards too.

Check out this article to read more about why you should care about KYC.

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