Sergey Kondratenko: KYC in Fintech Business

The KYC (Know Your Customer) process is an important part of business processes in fintech companies. This process involves the verification and identification of new clients.

Expert Sergey Kondratenko notes that effective KYC implementation is aimed at identifying and understanding the client, assessing potential risks, and, more broadly, providing preventive measures against possible financial crimes.

Financial institutions like banks, credit unions, and fintech companies must follow KYC rules to prevent fraud and money laundering. Fintech companies also use KYC to stay safe.

• Confirm the authenticity of a client's identity.
• Ensure clients meet the requirements for using the provided financial services.
• Prevent illegal use of their products or platforms.
• Maintain stable business relationships with clients.

Sergey Kondratenko: Main Goals of KYC

KYC is important in AML rules to prevent illegal financial activity. AML is a set of laws to stop illegal money moves, while KYC identifies clients.

Sergey Kondratenko says KYC in the AML framework aims to stop bad money stuff early. It decides if clients can use services or not. This helps banks and clients feel safe.

The KYC process helps to prevent:

• Money laundering
• Financial fraud and corruption
• Financing of terrorism

According to Statista, in 2020, the number of online banking users worldwide was 1.9 billion. By the end of 2024, it is expected to reach 2.5 billion. Such dynamics necessitate the more stringent and widespread application of the KYC procedure to verify users of financial instruments.

Not following rules can lead to banks getting fined and facing limits on what they can do. For instance, in the first part of 2021, fines of around $2.7 billion were given to 80 banks for not following AML and KYC rules. By 2023, fines went over $5 billion. As more people use financial services, rules will get stricter.

KYC Tools

Sergey Kondratenko highlights that there are several levels of such verification:

• CIP (Customer Identification Program)
• CDD (Customer Due Diligence)
• Ongoing monitoring

CIP - Customer Identification Programme

To open a CIP account, you need to give your passport or ID and address details. This shows you are who you say you are.

Corporate customers need to give details confirming their company's legal address, registration data, and info on owners and beneficiaries.

Financial institutions need to collect and store data correctly to meet CIP requirements. They must quickly verify the information collected and follow documented procedures closely.

CDD - Customer Due Diligence

Sergey Kondratenko says that SDD and CDD are more thorough checks to assess risks.

Simplified Due Diligence is a basic check to verify customers with low financial crime, money laundering, and terrorist financing risks.

Standard Customer Due Diligence (CDD) is for middle-risk clients. CDD checks risk levels and adjusts checks based on potential risk, says Sergey Kondratenko.

The evaluation looks at things like the type of work, checking if someone is on a bad list, checking for criminal ties, corruption in some cases, or when needed.

If a client is on those lists, we do a more detailed check called Enhanced Due Diligence (EDD).

Enhanced Due Diligence (EDD)

EDD is for high-risk clients or financial operations. It includes checking background and funds, extra document checks, continuous monitoring, and analyzing risk closely.

Sergey Kondratenko explains that EDD is for VIPs, private individuals, and risky businesses, like those in countries with terrorist groups. They are closely monitored for suspicious activities and bad news.

Monitoring

Companies always check risky clients' money stuff with KYC stuff. They watch transactions, data, personal info, and business changes. The check can change anytime due to actions.

These Due Diligence levels help banks check risks better. The company must also follow laws and keep the financial system safe.

Sergey Kondratenko: Modern KYC Technologies

Today's technology allows for automatic checks through the modern KYC system, which is software that quickly accesses document databases for instant verification.

Digital KYC is a way to check clients' identities online without meeting them in person or using paper documents, according to Sergey Kondratenko.

Digital KYC uses advanced technologies like OCR, video calling, selfies, and biometrics to quickly and securely verify clients, benefiting both customers and organizations.

Juniper Research says that spending on digital identity verification will hit $20.8 billion by 2027, up 80 per cent from $11.6 billion in 2022.

Businesses and banks use KYC to lower the chance of being part of illegal deals and avoid legal and money issues.

Sergey Kondratenko says KYC builds trust between clients and businesses by protecting clients' personal and financial info with care and security.

The verification process helps to make sure everything is legal and clear, prevent illegal money activities, and stop fraud.