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What are the various stages of the KYC process?

KYC (which stands for Know Your Customer or Know Your Client) refers to the protocol for verifying the identity of a client, physical person or corporate entity (KYB, which stands for Know Your Business, is also used).

This process plays an essential role in the verification of users’ and companies’ identity in order to prevent, amongst other things, identity fraud and money laundering. KYC procedures are critical for assessing client risk.

Indeed, the KYC procedure is not simply about assembling documents or information; it’s about undertaking a global analysis of a set of elements in order to assess the client’s risk profile and the due diligence measures that need to be carried out.

Regulatory obligation

As a reminder, every regulated financial institution must put KYC procedures in place for physical people and corporate entities.

The key stages of the KYC process

  • The client – whether a physical person or a corporate entity – opens an account via a mobile app or directly on a regulated institution’s website
  • The client receives a request by email/SMS from the financial institution to identify themselves, or they can do so directly in the app
  • The client must provide a certain amount of personal information depending on various criteria: Physical Person, Corporate Entity, Politically Exposed Person…
  • They then have to digitally send official documents and a photo or video of the person or, for corporate entities, of the physical person representing the company
  • Once they have been received, these documents are digitally or manually analysed
  • The KYC is validated if the information corresponds and all the inspection points undertaken by the institution in charge of the KYC are compatible
  • If this process fails, the request will have to be renewed if there was a mistake, or else the KYC will remain invalid and therefore transactions may not be undertaken

Artificial intelligence (AI) and video (KYC Liveness) allow a physical person’s KYC validation process to be accelerated, and also enables document validity checks to be strengthened.

Example of a standard “physical person” KYC

This is a list of some examples of documents generally requested. It is not an exhaustive list, of course, as each institution will ask for the supporting documents it deems to be necessary.

  • The client’s identity: family name, first name, postal address, email address, mobile phone number
  • Legal documents: one or more ID documents + proof of address less than 3 months old
  • Live video to check that the documents are accurate and compatible
  • Live video to check that the person wishing to open an account corresponds to the documents that have been presented

Example of a standard “corporate entity” KYC

  • Identity of the company: corporate name, sector of activity, postal address, email, phone number, website
  • Identity of the company’s legal representative(s): family name, first name, postal address, email address, mobile phone number
  • Identity of the beneficial owner(s): family name, first name, postal address, email address, mobile phone number
  • Documents for legal representatives: ID document + proof of address less than 3 months old
  • Documents for beneficial owners: ID document
  • Live video to check that the documents are accurate and compatible
  • Live video to check that the person wishing to open an account corresponds to the documents that have been presented

Once the documents have been sent, these elements can be analysed either automatically or manually. The video KYC – also called KYC Liveness – enables this process to be accelerated, increases security and strengthens document checks.

Automatic KYC analysis

Automatic analyses are instantaneous and made possible by API-based technology that is not yet accessible via all payment institutions. Thanks to this analysis, several formats are accepted, including pdf, jpg and png. Depending on the type of document, various inspection points are undertaken to assess their compatibility.

Example of documents analysed automatically:

  • ID card, passport, driving licence, proof of address, bank account details, company registration certificate (k-bis in France).
  • Live photo or video taken of the person requesting the opening of an account

Example of a client path to gather documents:

  • The company sends an SMS
  • Access to an online interface
  • The client photographs the supporting documents
  • The elements are directly transmitted to the company

Manual KYC analysis

Manual analysis is currently still the most frequent procedure. This is where the financial institution checks that the file is consistent and compliant. Indeed, client files can only be approved and accepted if all the requested documents comply with the institution’s requirements, are consistent with each other and match the information provided in the registration form.

Example of documents analysed manually:

  • Proof of address, notice of tax assessment, articles of association, UBO…

Example of a manual check following an automatic analysis:

  • Wrong document received
  • Poor quality of the documents collected
  • An alert is raised by the API

PEP Check

Payment service providers also have to verify the lists of politically exposed persons (PEPs) or those on sanction or embargo lists.

European regulations pertaining to money laundering and the financing of terrorism are currently undergoing significant changes. The main thing European bodies are seeking through the implementation of such legislation covering the various players is enhanced monitoring of financial flows and better client identification.

KYC during the relationship with the financial institution

All financial institutions have a duty to review KYC.

Indeed, KYC is undertaken when a client registers with a finance player, but also throughout their relationship with the latter. Updated or additional documents may therefore be requested at specific moments of the relationship between the client and the financial institution.

Key takeaways:

  • KYC is a procedure imposed on all financial sector players, the aim being to identify the client for security purposes
  • The supporting documents requested depend on the financial institution’s judgement and the nature of the client (physical person or corporate entity)
  • The analysis of the documents can be done automatically or manually, depending on the technology developed by the financial institution
  • PEPs (politically exposed persons) are subject to additional checks
  • KYC is undertaken when a new client registers, but also throughout their relationship with the financial institution

Would you like to know more about Treezor’s KYC process?

Why verify a customer’s identity?

Find all our KYC articles on the Treezor blog.