Emily Clarke

What is KYC Risk Rating?

Financial institutions such as banks run the risk of doing business with the wrong crowd. In other words, these organizations have a higher risk of accidentally doing business with individuals who are committing financial crimes, which is punishable under U.S. law. As a result, organizations in the financial industry, and some related businesses, should know what a KYC risk rating is and how to calculate it. In doing so, organizations can avoid hefty fines and reputational damage that will reduce profits and customer loyalty.

What is KYC?

KYC stands for "know your customer." It's a set of standards used by companies in the investment and financial industry to verify that customers are who they say they are, measure the risk of doing business with them, and confirm their financial profile.

KYC is extremely important at the onset of the relationship with the customer because it enables companies to establish the basic facts about an individual before they provide any business services or recommendations. KYC is also required to make sure the customer's account is handled efficiently, correctly, and legally.

What is a KYC risk rating?

A KYC risk rating is a calculation that summarizes the overall risk of doing business with a particular client. Or, it can also be used to quantify the risk a company faces based on its entire client portfolio. Typically, financial organizations keep track of both risk ratings since all of that information is critical to its success.

How a KYC risk rating works

Financial institutions and many other companies are required to closely monitor their clients' activities. With a KYC risk rating, companies use various risk factors to score clients. They gather a broad amount of information on each client and compile it into a portfolio. Once a client's portfolio is completed, companies analyze all the information and determine a risk rating for that client. If the risk rating is high, they will consistently and closely monitor that specific client. Otherwise, if the risk rating is low, the company will still monitor the client, but less diligently, because they pose less of a risk.

What's the best IDV service?

Organizations constantly receive large amounts of customer data that needs to be analyzed. Many KYC risk rating tools are at least partially automated because it would take way too long to manually sort through all that data. As a result, many organizations wonder how they can find the best IDV service (identity verification service). If your organization is searching for an IDV service, you should look for one that:

• Caters to your compliance needs (based on what type of company you operate and what KYC regulations apply to you)
• Provides an adequate number of security checks without hindering the conversion process
• Uses both machine learning and manual reviews
• Covers all your business markets around the globe
• Supports a maximum number of ID documents
• Is customizable to your business's needs

Finding the best IDV service isn't always easy, so it's a good idea to shop around and familiarize yourself with as many options as possible before you make a decision.

Author Resource:-

Emily Clarke writes about identity verification and business verification service. You can find her thoughts at ID verification service blog.