KYC Onboarding—How to Ensure AML Compliance

Know Your Customer (KYC) onboarding is the first line of defense against fraudsters—and the first thing a customer sees when dealing with a company. That’s why it’s critical to build this process properly, ensuring a high level of  protection and a flawless customer experience.

To simplify the KYC onboarding process, we at Sumsub prepared this guide to staying compliant with regulators and best practices for client onboarding.

What is KYC onboarding?

Know Your Customer (KYC) onboarding is a set of legal procedures businesses must conduct before working with a new customer. These procedures include collecting and verifying certain data about customers.

The minimum data businesses need in order to identify their customers includes:

• Name
• Date of birth
• Address

The KYC onboarding process is required for compliance with Anti-Money Laundering (AML) regulations. The exact list of information and documents varies from country to country. So it’s necessary to check the AML regulations and guidelines of the relevant jurisdiction and make sure that the company stays up to date with the new regulations. 

To verify customer data, businesses need to obtain authentic and valid documentary evidence from the customer. This can be an ID card or Passport (or any other valid identity document) and a utility bill (or some other proof of address document like a tax bill, voter roll, or bank statement).

KYC onboarding and AML 

Customer onboarding requirements usually depend on the regulations of a given jurisdiction. In many countries, it’s enough to remotely verify documents and perform a liveness check. But in Germany, for instance, businesses have to onboard customers through a video identification process, which includes a range of mandatory steps such as an interview. While interviews are not explicitly required for all KYC procedures in Germany, financial institutions may choose to conduct interviews with customers as part of their CDD process. Interviews can help gather additional information about the customer, assess the risk profile, and ensure compliance with regulatory requirements.

Companies need to adjust their KYC workflows to specific customer groups. This means building processes that:

• Ensure AML compliance
• Can be tailored to the relevant industry and the business’s specifics)
• Simplify the customer experience by making onboarding easy, thereby increasing conversion rates)
• Keep costs low

To make the onboarding process easier, companies can delegate their KYC duties to a verification provider. 

Who needs KYC onboarding?

Any AML-obligated industry has to apply KYC procedures during customer onboarding, though non-obliged businesses can also benefit from it.

Regulated businesses include financial institutions and designated non-financial businesses and professions such as:

• Financial services
• iGaming 
• Virtual Asset Service Providers (VASPs)
• Trading
• Real estate agents
• High-value dealers, etc.

Non-regulated businesses, such as carsharing services and marketplaces, are also encouraged to apply KYC procedures to prevent fraud and avoid financial and reputational losses.

KYC and AML requirements by countries

Here you can find the list of the KYC and AML requirements in different countries: 

• Austria
• Brazil
• Canada
• Chile
• Germany
• Hungary
• India
• Indonesia
• Israel
• Malaysia
• Nigeria
• Philippines
• Saudi Arabia
• Thailand
• UAE
• UK

CDD and EDD in customer onboarding

When it comes to Customer Due Diligence (CDD), companies must implement the following procedures as part of the Know Your Customer checks:

1. Customer identification—acquiring the customer’s personal data and verifying the identity of their clients or customers of. Customer identification is a critical component of Know Your Customer (KYC) requirements, which aim to prevent financial crimes such as money laundering, fraud, and terrorist financing.
2. Customer verification—ensuring that this data is not stolen or forged by verifying it against documents or other reliable sources independent of the customer.
3. Selfie check or face authentication—determining whether the true document holder is present during the onboarding process and is not under duress or there is someone else impersonating
4. Address verification—determining whether the customer comes from the claimed region. Geolocation data such as detection of IP address can also provide supporting evidence as to the location of a client.
5. Beneficial ownership check—identifying the beneficial owner, where relevant, and verifying their identity.
6. Understanding the purpose of the business relationship—assessing, and, where appropriate, obtaining information on the purpose and intended nature of the business relationship or transactions.

Regulators determine the required information, documents, and verification methods for passing KYC. But companies can have their own specific requirements for the customer onboarding process.

For suspicious customers, an Enhanced Due Diligence (EDD) check should be performed. This can include the following steps on top of standard CDD:

• Obtaining specific information about the customer, such as their economic profile
• Determining the customer’s beneficial owner
• Establishing the purpose and intended nature of the business relationship

How to Improve the Customer Onboarding (KYC) Process

Automating the verification process can make a big difference. From Sumsub’s experience, automation reduces costs by 40%, speeds up verification to one minute, and frees up company resources, with employees spending 70% less time on compliance tasks.

With right KYC provider, businesses can also benefit from:

• High-pass verification rate worldwide—this includes even markets that are more challenging in terms of the verification pass rates 
• Anti-fraud detection—this includes deepfake detection, fraud network detection, phone/email risk assessment, device fingerprinting, and much more
• Non-document verification—the technology allows companies to easily verify the identity and other information about their customers without documentation
• Database validation—companies can validate user data as an additional security level
• Workflow builder—the technology allows companies to build custom verification flow with no code

KYC Onboarding Solutions

Not all customers can be onboarded the same way. That’s why it’s essential for companies to customize their onboarding process. Doing this manually is cumbersome, which is why digital solutions are a great help.

Sumsub’s digital solution enables the following:

• Verification level creation—you can implement different levels for customers, each of which will have its own verification steps (e.g., ID Verification, Selfie Check, Proof of Address, and others). You can also select the exact documents your company is willing to accept. All of the steps can be tailored to the needs of the company and the regulatory requirements
• Workflow builder—you can specify the track each customer will take at the onboarding stage. The track can be tailored to different countries and risk groups. Depending on these factors, you can create different scenarios with no code required.
• UI customization—it allows companies to customize the user interface by creating their own designs or using pre-made ones. The customization also takes place with no coding required.

You can read more about the solution in our tour.

A standard verification level consists of the following steps:

• Providing personal information
• Uploading an identity document
• Passing a liveness check

In addition, businesses can use settings to specify supported countries and documents.  For example, a company may choose not to accept a certain document (e.g., a Residence Permit) in one country, while accepting it elsewhere.

FAQ

• What is the customer onboarding process?

  Know Your Customer (KYC) onboarding is a set of legal procedures businesses must conduct before working with a new customer. These procedures include collecting and verifying certain data about customers.

• What are the steps to client onboarding?

  • Customer identification
  • Customer verification
  • Selfie check or face authentication
  • Address verification
  • Beneficial ownership check
  • Establishing the purpose of the business relationship

• What are the requirements for KYC onboarding compliance?

  Customer onboarding requirements usually depend on the regulations of a given jurisdiction. In many countries, it’s enough to remotely verify documents and perform a liveness check.

• The minimum data businesses need in order to identify their customers includes:

  • Name
  • Date of birth
  • Address

  The KYC onboarding process is required for compliance with Anti-Money Laundering (AML) regulations. The exact list of information and documents varies from country to country. So it’s necessary to check the AML regulations and guidelines of the relevant jurisdiction and make sure that the company stays up to date with the new regulations.