2 KYC Examples in Banking and Finance Industry

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Know Your Customer or KYC is a mandatory principle in the customer registration process by financial institutions. This principle should not be ignored in the slightest and must be applied by institutions in the financial or banking industry. Why does it have to be like that? The reason is, KYC is a crucial step to anticipate money laundering and corruption that often occurs in financial institutions. This is why we have to know the successful KYC examples in both industries.

What are some KYC examples that can serve as a guide in applying this principle? Read this article until the end to find the answer!

Definition of KYC

Know Your Customer (abbreviated as KYC) is a principle that aims to verify the identity and financial activities of prospective customers in bank and non-bank financial institutions. In this process, knowing the name and ID number alone will not be enough. All of these institutions should know all information about the type of work, the history of financial transactions, and the purpose of financial activities carried out by prospective customers.

In Indonesia, the KYC principle was previously only carried out by banking financial institutions. Bank Indonesia as a banking regulator requires the implementation of KYC in its regulations stated in Bank Indonesia Regulation No. 3/10/PBI/2001 concerning the Application of Know Your Customer Principles.

Now, KYC is implemented in all financial institutions, including non-banking. The Financial Services Authority (OJK) also oversees KYC principles in non-bank financial institutions such as insurance companies, investments, financing institutions, and online loans. KYC implementation in each financial institution is overseen by a special work unit following Minister of Finance Regulation Number 30/PMK.010/2010.

Purposes of Implementing KYC Principles

KYC principles are implemented in financial institutions based on the five objectives below:

1. Understanding the Customers More

Financial institutions have the right to ask customers to provide identity documents and related information such as credit history, source of income, and purpose of transactions in the KYC process. All of this information is useful for financial institutions in understanding a customer’s risk profile and taking appropriate action to protect customer interests and prevent the risk of loss.

2. Helping Regulators Monitoring Financial Activities

KYC also brings benefits to Bank Indonesia and OJK, where the two regulators can monitor all financial activities and their customers more easily and effectively thanks to KYC. Information obtained from KYC can be used as a tool for monitoring and supervising financial activities that are suspicious or have the potential to violate regulations.

3. Preventing Money Laundering and Corruption

The main goal of KYC is to prevent money-related crimes, especially money laundering and corruption. In the KYC process, financial institutions can identify and prevent potential customers who try to abuse the financial system to carry out illegal or suspicious activities. In addition, information recorded from KYC can be used as evidence in the investigation and prevention of financial crimes.

4. As Internal Monitoring System for Financial Institutions

KYC assists financial institutions in supervising and monitoring all customer financial activities. The information recorded from KYC can be used to check the suitability between a customer’s financial activity and a predetermined risk profile. If there is suspicion of certain financial activities, financial institutions can carry out further investigations or provide warnings to customers.

5. Helping Investigations when Money Laundering Takes Place

KYC can be an important source of information for investigations in case of money laundering. Financial institutions can assist law enforcement in conducting investigations and prosecution of perpetrators of financial crimes. The effectiveness of prevention and handling of financial crimes in Indonesia is running effectively with information from KYC.

Implementation of KYC in Financial and Banking Institutions

How is the implementation of KYC examples in the financial and banking industry in Indonesia? Let’s take a look at two examples below.

1. Implementation of Conventional KYC

Since it was first introduced in Indonesia, the banking industry has always used the conventional KYC system. This system requires prospective customers to come directly to the financial institution’s office and collect physical documents as a condition for identity verification. Prospective customers are also asked to fill out the form provided.

As a result, conventional KYC takes a long time and becomes tedious. The length of time it takes to verify and create an account is considered troublesome for some customers, especially if the same customer wants to create a new financial account.

2. Implementation of Electronic KYC (e-KYC)

Electronic KYC (abbreviated as e-KYC) is a KYC process that instead utilizes digital technology. The e-KYC system used in the identification and verification process also facilitates the work of financial institutions. Financial institutions only need to use the application and ask potential customers to enter identification information and attach a photo identity. Interestingly, form signing can also be done digitally which eliminates the need to come to the office.

Now, e-KYC is increasingly popular because of its ease of use. Customers also tend to choose financial institutions that implement e-KYC because it can be done online regardless of location and time. Therefore, there is nothing wrong with implementing this KYC example at the financial or banking institution that you work for.

For the sake of ease of work, e-KYC services at your financial institution can now be done simply by using eendigo User Validation. With this, the e-KYC process can be carried out more comprehensively because you can now access government data such as SLIK, Samsat, and Dukcapil to test the eligibility of potential customers.

Designed with machine learning algorithms, eendigo User Validation can adjust the authentication method according to the risk level of prospective customers. Want to know more about this service? Contact us now or you can click here to get the free trial right away. Improve your KYC process quality only with superior services from eendigo!