The United Nations estimates that $2 trillion annually is laundered globally. Less than 10% of that is discovered, and less than 1% of laundered funds are recovered. 

To combat money laundering and fraud, regulations require businesses to investigate their customers' backgrounds and conduct identity verification to ensure they are who they claim to be. 

Knowing the rules and regulations can help prevent criminals from using businesses to launder money or commit fraud. This can also help businesses save money on non-compliance penalties. 

There is a wealth of information available on customer identity verification. However, reviewing this can be overwhelming and time-consuming. 

We created this "ultimate guide" to everything you need to know about identity verification to make risk management and compliance easier for you. Let's get started. 


What is Identity Verification?  

Identity verification is required to ensure a person's identity matches the one it is supposed to be. 

Verifying an individual's identity entails comparing the unique characteristics and traits associated with that individual to the one claiming the same. 

This technique is required to verify identity and prevent fraud via authentication and authorization. Significantly it is required for most procedures and processes, such as online/offline banking, booking flights, or applying for a passport. 


What are the Benefits of Digital Identity Verification?  

1. Create Trust Between the Customer and Businesses 

Identity verification helps build and maintain trust between customers and businesses. 

A trustworthy economy promotes stability and investment in the country because businesses are confident in their financial institution's anti-money laundering policies. 

Lenders who perform identity verification can lend more money with less risk. They can provide more loans to stimulate economic growth if they identify previous financial history and assets owned through identity verification.

2. Reduce Fraud 

Identity verification can help reduce synthetic and unemployment fraud, which are growing concerns in today's economy. Businesses can lose millions of dollars due to credit card fraud. This is especially true given the rapid adoption of online shopping during the pandemic. 

3. Avoid Penalties for Non-Compliance  

‍Another advantage of identity verification is that it allows businesses to avoid fines for non-compliance. 

Global penalties for non-compliance with identity verification were $10 billion in 2019. Twelve top 50 banks were fined for failing to comply with KYC requirements. The company must not only pay monetary fines but also deal with the reputational damage resulting from media coverage of non-compliance. 

Investors and customers want to believe in the company they are investing in or purchasing. However, non-compliance with KYC rules can lead to distrust and negative brand associations, which are bad for business.

4. Fight Financial Crime  

Continuous identity verification and suspicious reporting activity to the government can help provide the data needed to combat financial crimes such as money laundering, tax evasion, and terrorist financing.  

Who Needs a KYC Program? 

The need for KYC programs has grown as more businesses interact with customers online rather than in person. Any business that transfers money should consider implementing a KYC program to safeguard customer data and the company against identity fraud. 

Neobanks and Fintech companies must ensure compliance with the laws' constant change. 

Moreover, retail and manufacturing companies and other businesses that accept credit cards should implement a KYC program to safeguard their business from the expense of chargebacks. 

Businesses in the financial services industry know the advantages of a KYC program, but they are not the only ones who should implement it. Confidential information is also dealt with in the healthcare industry. Therefore, more stringent identity verification requirements can safeguard healthcare businesses and their clients.  

What are KYC Requirements? 

The US Patriot Act specifies three requirements for KYC. The first benefit of KYC is that it increases customer knowledge, which can be useful in the fight against money laundering. Transparency International claims that increased data and transparency can aid in the fight against financial crime.  

1. Customer Due Diligence (CDD)  

You must evaluate the risk associated with the customer with customer due diligence. You can manage risk and defend yourself from criminals and terrorists with CDD. 

Moreover, you can perform crucial due diligence on every client to confirm their identity and evaluate their risks. Remember that essential due diligence includes learning who the company's beneficial owners are. To spot any future anomalies, you also want to be sure you comprehend the business. 

The simplest level of due diligence that can be performed on a customer profile is simplified due diligence, which can be used for clients who pose little risk based on past behaviors and patterns. This requires less effort and takes less time.

2. Customer Identification Program (CIP) 


According to the Customer Identification Program (CIP), banks and other financial institutions must take the necessary measures to confirm that all customers who sign a formal contract with them are who they claim to be. On June 9, 2003, the requirement became law and became a requirement under the Bank Secrecy Act (BSA). The program is frequently referred to as "Know Your Customer." 

Every company conducts its CIP so that different businesses will have different requirements. 

Typically, you should request a person's passport or driver's license. Additionally, you can obtain partnership contracts, trust deeds, or articles of incorporation for other entities. Financial statements may also support the process of verification.

Identity Verification Regulations and Standards to Know  

The Currency and Foreign Transactions Reporting Act, also known as the Bank Secrecy Act, was passed by the United States Congress in 1970. (BSA). Individuals and financial institutions are required to keep records under the BSA. FinCEN was established in 1990 to detect and prosecute financial crimes such as money laundering and terrorist financing. 

The USA PATRIOT Act was passed 12 years later and significantly improved the BSA. It gave FinCEN more authority to collect data from companies and financial institutions, including beneficial ownership information. It now gathers information from over 27,000 financial institutions. 

FinCEN is authorized by the USA PATRIOT Act to establish regulations that specify the procedures financial institutions must adhere to when opening new accounts. This covers identity verification techniques, such as checking the identity of anyone requesting to open a new account to the extent that it is "reasonable and practicable."  


Businesses that fail to win over customers' trust eventually go out of business. Perhaps, for this reason, authentication procedures ought to be in place. 

The end result is a compromised consumer identity and brand tarnishing because cybercriminals can easily exploit insufficient identity verification systems. 

Businesses should think about relying on a reliable identity verification and risk management tool that supports securely confirming user identities without degrading the user experience. 

Identity verification and risk management systems may be the best option for protecting vital consumer information and providing a strong authentication mechanism backed by an excellent user experience.