What is KYC onboarding?
KYC onboarding refers to the Know Your Customer process that all regulated entities must perform before taking on a new customer. KYC onboarding aims to prevent money laundering and tax evasion.
It also prevents PEPs (Politically Exposed Persons) from regulated financial services without full disclosure, potentially leading to insider dealing, depending on the nature of the business.
All regulated businesses, like banks and forex brokers, must follow Anti-Money Laundering (AML) during new client signup and during the trading cycle of that particular customer. For example, if a new customer uses a credit card to make a deposit, the customer cannot withdraw those funds to a different card.
The KYC onboarding process ensures that the regulated entity successfully verifies the customer’s identity. This is not only to comply with their regulations. The process also safeguards the business from potentially onboarding high-risk customers, which might expose them to an unacceptable risk level.
New customers must submit various documents for verification during the KYC check. These usually comprise of an ID Document and a Proof of Residence document.
Depending on the regulatory status of the business, during the customer onboarding processes, customer due diligence documents must comply with certain restrictions, such as the date of issue and validity.
Once the customer has submitted the requested documents, the business verifies these and either onboards the customer or not. In some cases, the broker may request new copies if the original document is illegible, for example.
However, the verification process goes beyond simply verifying the validity of a proof of residence document. For example, a politically exposed person or a wanted criminal may have a valid ID. That doesn’t mean the particular individual would be a suitable customer for a forex broker, for example.
Why Does It Matter?
Fraud is a fact of life in the financial industry. There will always be someone looking to game the system or take advantage of a loophole to get an unfair advantage or commit downright fraud.
The penalty for non-compliance for regulated entities can be severe. Regulators are quick to fine brokers for non-compliance with AML regulations, for example, but in many cases, that fine is just the tip of the iceberg. The damage to a broker’s reputation can far outweigh the economic effects of any fine.
Having an effective KYC onboarding process in place also helps to reduce negative customer feedback. For example, one of the most common complaints involves rejected documents. While the reason behind any such rejection could be entirely innocent, it always pays to have a full trace to provide to the customer. A curt “document is no good” type of response can be the reason for negative customer feedback.
However, on the flip side of this coin lies a different take on stringent processes. Making your KYC onboarding process too tricky and complex can drastically decrease your conversion and FTD rates. Nobody likes to jump through hoops, which is particularly true for forex brokers. Make your onboarding processes too cumbersome, and potential customers will find a broker with a more straightforward signup process.
Over and above the potential for negative customer feedback, not following a robust KYC onboarding process also leaves brokers open to what can be unacceptable levels of risk. Allowing known bad apples to trade on your platforms can have dire consequences, and we’ve all heard stories of client fraud and manipulation.
How Automation Can Help
ID documents come in all shapes and sizes, so manually verifying these can be time-consuming and very complicated. If your KYC onboarding process simply checks if a document looks real, you don’t need specialized solutions.
If, however, your brokerage wants to be in full compliance with your regulatory framework, then automated solutions have to be on the menu.
Verifying the person behind the documents calls for specialized services with complex verification and monitoring engines. In the case of the PLUGIT modules, we integrate directly with one of the market leaders in the KYC and verification industries, Sumsub. This integration allows brokers to streamline their KYC process and AML compliance with all the required traces for AML regulators and internal risk management.
The Sumsub monitoring engine also provides a robust solution for all trader activities, including transaction monitoring, an essential part of the overall KYC process.
Automated services like Sumsub have ever-growing databases of PEPs and wanted criminals. Access to these databases drastically reduces the risk of onboarding a bad player, a move that could leave you open to fines apart from economic loss from their actual trading activities.
At PLUGIT, we never limit our partner’s options. We’re always open to that discussion if you want to integrate with a particular verification service. There are options for automated KYC onboarding solutions. We’re happy to help connect your brokerage to your selected service.
Our flagship product, the YOONIT suite of intelligent modules, is made up of all the tools your brokerage needs to run smoothly and efficiently with the best return on your investment. We can have you up and running in a matter of days with all systems your brokerage needs, including:
- Risk Management Module
- Partner Module
- Bonus Automation Module
- MAM / PAMM Module
- Custom Forex CRM
Built on the power and security of the Microsoft Azure Cloud Infrastructure, YOONIT is the power behind over one hundred of the leading brokers in the world.
All the YOONIT modules are stand-alone, so you can use one or all of them, whichever of the modules you need. In addition, all our products integrate directly with your MetaTrader 4 or MetaTrader 5 platforms for a seamless experience for your existing systems and client portals.
We’re confident we can help you achieve your goals, so why not get in touch with us today for a no-obligation consultation and a demonstration of the power of the YOONIT suite?