Recent changes in KYC regulations and what triggered the change

KYC (know Your Customer) regulations are one of the oldest regulations implemented on businesses. It is because businesses, especially financial institutions are the beloved target of fraudsters. But with the technological advancements and the growth of E-commerce and Fintech fraud has entered every industry.

So the scope of KYC regulations is extended and it is no more limited to the financial industry. The laws are becoming more strict and it is no more an option to perform KYC screening on the customers. 

Recent changes in Global KYC laws

Let's see how the KYC laws changed in the last few years. 

The FATF increased the scope of KYC Regulations laws to legal professionals, precious metal dealers, and digital assets. The member countries are recommended to add these industries in the reporting entities of KYC / AML laws and to implement the same laws as on financial institutions. 

The Swiss regulatory authority gave banking certificates to two pure-play crypto banks. In order to cover the risk in crypto, the crypto banks will be obliged to follow the same KYC / AML and data security regulations as the banks. 

The Fifth Anti Money Laundering Directive (5AMLD) of the EU is also implemented in January 2020.

The new directive has made the KYC laws even more strict and also, requires the member countries to take proactive measures to prevent the risk associated with digital assets. Also, the customer identity verification threshold for prepaid cards is minimized from EUR 250 to EUR 150. The 6AMLD is also in the pipeline. 

The Canadian regulatory authority now requires the Money Services Businesses (MSBs) to follow strict KYC laws and to register with the concerned authorities. 

The laws are becoming strict and governments are taking measures to prevent any losses to the economy that may occur due to increased crimes such as money laundering, and terrorist financing. For instance, the kingdom of Saudi Arabia became a full member of FATF and founded the trend in the Arabian region.  

Why are the regulations becoming stringent? 

There are a number of driving factors behind why governments choose to become more strict towards compliance or make the laws more strict. A few reasons why KYC laws are becoming strict are mentioned below: 

Increase in fraud

Identity theft is increasing and it is an open secret that these stolen identities are used to defraud businesses. A report stated that a total of 14.4 million identities were stolen in 2018, in the US Most of those stolen identities were used to defraud businesses.

Fake identities and stolen identities initialize a range of frauds, such as account takeover fraud, credit card fraud, synthetic identity fraud, etc.  

Money Laundering 

A report by the United Nations reported that an amount equivalent to 2 to 5% of global GDP is laundered annually. This is a huge loss that occurs at a global level. Also, money laundering is conducted through businesses, but it has grave consequences for the economy and trade of a country. 

Technological advancements

With technological advancements, the risk has increased, especially the advent of decentralized cryptocurrencies and digital payment solutions triggered the changes in the KYC laws. Fintech received global acclaim and a huge number of people are loyal customers of this industry.

Criminal entities are also using this industry due to a lack of regulations and control over this industry. The recent changes in most of the Ongoing AML Check (regional or international) accommodated these technological advancements. 

To wrap up, KYC laws are becoming strict and non-compliance will lead to heavy fines. On the other hand, compliance improves the market value and credibility of a business entity. Also, it ensures proactive fraud prevention. Therefore, no matter how strict the KYC laws are, the businesses are obliged to follow them.