KYC and Building Trust

Trust is one of the necessary components in order for FinTech processes to function efficiently, and it is most associated with the concept of Know Your Customer – KYC, with the aim of preventing phenomena such as identity theft, tax evasion, money laundering, and terrorist financing.

In this case, the trust is realized through several aspects – starting from the need to respect the legal framework, as well as the need to limit the risks of regulatory fraud, all with the intention of establishing business relationships.

Goals

One of the basic goals for which KYC exists is to identify any attempted fraud, money laundering, and terrorist financing within banking institutions.

The basic idea of this concept is to study client files, ie to obtain information on the origin of funds, the definition of customers, the goals of financial operations, as well as monitoring cash flows.

KYC program standards are formalized in the policies of financial institutions that characterize client acceptance programs, customer identification procedures, and transaction tracking procedures.

This concept is used by entities of all sizes to enable clients to comply with anti-corruption laws, as well as to verify their integrity.

Such procedures are most often carried out through data collection and analysis, analysis of previous activities and behaviors, verification of presence on certain lists, as well as analysis of previous transactions, etc.

In case of non-compliance with control obligations, caution regarding the origin of clients and the funds they manage, banking institutions are exposed to financial, judicial or disciplinary sanctions.

Principles

There are four basic principles that help to ensure trust in this process, and they are neutrality, integrity, interoperability, and non-denial.

All activities carried out within the KYC process are neutral and codified by the protocol, which means that no one can unilaterally prevent others from taking action and that everyone can check whether it works.

Like the basic feature of a blockchain to ensure that data is not modified at any time, cryptographic methods link blocks to each other, allowing for permanent control of each modification.

The principle of early non-denial allows any action to be confirmed and monitored. Any modification, as well as any transaction, can be found and determined not to have been modified.

Thanks to the blockchain, it is possible to avoid a phenomenon called proprietary locking, such as when in certain situations when it is very difficult or completely impossible to migrate certain data outside the proprietary tech solution. This does not happen with blockchain, thanks to its open-source nature.

The process

General obligations related to clients and transactions are materialized in operational processes through three key phases: identification and verification of the client with sufficient certainty, assessment of client characteristics, type, purpose, and goal of business relationship with an assessment of money laundering risk, as well as continuous monitoring of the client’s business relationship and business, obtained by checking his profile and the transactions in which he is involved.

In this sense, each company or institution has a double obligation, the first relating to the obligation to be vigilant in the fight against money laundering and terrorist financing, and the second to inform and warn its trustees on all important issues.

The application of the KYC concept is one of the most important economic issues. There are a number of factors influencing the increasing need to use KYC, and among them is the fact that the geopolitical situation is also stagnant, as well as that the drastic growth of international transactions must find a concrete way must find protection.

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