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KYC Norms and the Effects on the Modern Banking System

by Deepak Sudera
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KYC Norms and the Effects on the Modern Banking System

KYC or Know Your customer measures are not new to the modern banking world. Globally regulated institutions come under the requirements from global anti-money regulations to implement measures for improved customer identification. In order for financial institutions to have a better idea of who they are dealing with and whether their necessary activities represent significant risks to their KYC compliance. Like any business process, each new practice or change brings forth a response from its users, who are the first responders to such business changes. Users who have gone through KYC procedures over time have become a part of KYC norms that have an effect on the modern banking system. This take on KYC compliance by the present banking systems can be found discussed in greater context below.

Impact on the existing relationships

KYC has not been properly understood by institutions. Where KYC has been implemented as an excuse to disturb existing relationships and customers through unnecessary diligence activities that may otherwise be not appropriate. KYC norms have not been uniform across all types of customers, whether these are large corporate entities or small and medium-sized depositors.  KYC norms should not be slapped on every customer just like that, rather these should be used in conjunction with real-time transaction monitoring. This will ensure the application of diligence measures proportionate to an individual’s account activity and risk level.

Business processes and the new banking mindset

The inclusion of KYC is a must for financial entities to have, without which any further operations become doubtful and in plain violation of regulations. Ultimately, KYC compliance has done more good than bad to the modern banking system. In other words, digital businesses that have sprung up which are challenging the traditional financial systems. Have started using modern KYC methods to perform similar obligations in a much more streamlined fashion.

Incorporating digital KYC into modern business processes have allowed the element of speed to be made into a strategic advantage. As the use of improved technology and artificially intelligent systems made way for real-time processing to take place. Which greatly affected how quickly an FI could onboard a customer and deal with the next. Modern banking, which is mostly digital and online makes use of new KYC procedures to check against passport and government issued ID for identity verification purposes.

The biggest hurdle to modern banking is user fraud, due to the nature of operations carried out in a non-face-to-face setting. To mitigate the risk of fraudulent activity without creating too much friction for genuine for customers was made possible by the employment of third-party diligence services that would efficiently tackle diligence obligations and user experience altogether. A person not physically present has been taken care of by KYC services that utilize a web-camera, or mobile solution for verification purposes. To ensure the verification of individuals on the move, which is not restricted to hardware or physical constraints. Modern banking is set to see the fusion of regulatory compliance and technology to guide the way for the future of streamlined regulatory processes and onboarding journeys.

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