KYC Compliance for Forex Trading

Last Updated: September 1, 2023 by Gergo Varga
KYC compliance is demanded by regulators and often feared by businesses.
Today, we look at why it’s so challenging in our digital age and offer tips on meeting KYC regulations the smart way.
KYC compliance covers the steps your business must legally take to verify user identities. KYC requirements are set by governments, which is why there are variations from one country to the next.
The compliance part is verified by auditors. It’s their job to ensure that your business meets due diligence requirements – which you can do either by logging the data yourself or relying on professional third parties (for instance, accounting firms).
It is worth noting that, historically, keeping a KYC audit trail for compliance has proved challenging. However, in the digital age, many businesses rely on third-party tools such as KYC software to automate record-keeping in a safe and reliable way.
All legal KYC requirements must be complied with or you could face heavy fines from regulators. Nearly $1 billion was issued in KYC and AML fines in the first half of 2021 alone. This is just one of the many reasons why KYC compliance is a must for online businesses:
Maintain a good business reputation: staying in regulators’ good books isn’t just a benefit for your legal and compliance team. It also helps avoid PR disasters that could damage your business reputation in the eyes of customers and stakeholders.
KYC requirements may vary slightly from one locale to the next, but they generally require that you perform customer due diligence, create a customer identification program, and deploy ongoing monitoring. Let’s break down each process in detail.
Customer due diligence is of a series of risk-based checks designed to ensure that your customer is who they say they are and do not present a risk to your company or the country.
The steps may include:
Note that there are other levels of due diligence, namely Simplified Due Diligence, which requires less information, and Enhanced Due Diligence (EDD), which requires the collection of additional data.
A customer identification program, or CIP, is the core of the KYC process. It is designed to establish steps to gather a customer’s
In some jurisdictions, such as the US, you may also have to ask for personally identifiable information, or PII, such as a social security number.
Ongoing monitoring ensures that your custom due diligence doesn’t stop after the onboarding stage. You should regularly flag suspicious activities and behavior, such as a spike in transactions, high-value payments, or logins from new locations.
While ongoing monitoring mainly focuses on transactions, it is also important to check your records for a customer’s change in status. For instance, a customer may become a politically exposed person (PEP), which requires the creation of reports for compliance officers.
Unfortunately, even the businesses with the best intentions face challenges when attempting to meet KYC compliance requirements. Here are just a few examples:
Now that we’ve established the importance of KYC compliance, let’s look at the tools and strategies at your disposal.
Did you know that legal KYC requirements are completely different for working with individuals and businesses? Or that you might need to check hundreds of different document types, depending on where you operate in the world?
The truth is that KYC compliance can be a logistical nightmare. Luckily for you, we’ve compiled a checklist of the best KYC practices and a 5-step process for you to get off on the right foot.
KYC software is increasingly popular, affordable, and easy to integrate with your business and help automate kyc. The range of features available varies greatly from one vendor to the next, but the key benefits should be similar across the board:
For many online businesses, the issue isn’t that they don’t have KYC checks. It’s that fraudsters have no problem bypassing them. And yes, even if you have tried your best to meet KYC requirements, this could put you at the mercy of the regulators.
So how do you boost KYC compliance with anti-fraud checks? Here are some key tips:
And speaking of data enrichment checks…
Data enrichment has another advantage when it comes to KYC compliance. It allows you to filter out junk users before they go through costly identity verifications.
Put simply, it’s about saving time and resources – and ensuring you boost your chances of remaining compliant.
Here’s an example of how pre-KYC data enrichment such as SEON’s can help. Consider this scenario:
In short, all the signs here point to the fact that you’re dealing with a fraudulent user.
Do you really want to continue with the identity verification process? It stands to reason that you’re better off blocking them from your site straight away (and saving the data to look for similarly bad users in the future).
KYC compliance and AML compliance are two different things, but they tend to go hand-in-hand. AML also overlaps with fraud prevention. Why not kill two birds with one stone when deploying your KYC software tools by also ensuring they can meet AML requirements?
This is why you could be looking for:
Regarding the latter point, this is also something your fraud prevention tool should be able to do, allowing you to keep your operations safe.
SEON is a fraud detection system that is modular, allowing you to choose features that make sense for your business.
And when it comes to KYC, some of the most innovative leaders rely on it to augment their identity verification process. For instance, for:
Curious about how it all fits together and why 6000+ businesses rely on SEON for a wide range of use cases, including KYC compliance? You can see this for yourself in a demo using your own data.
Pay less for KYC by filtering out bad users and keep your organization safe from fraud with SEON
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KYC regulations are in place for financial organizations and money services. This includes banks and neobanks, but also estate agents, crypto companies, insurance companies, private lenders and lending platforms, credit unions, iGaming companies, and more.
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Gergo Varga is SEON’s Product Evangelist. With more than 10+ years of experience in the Hungarian and international risk management sphere, he has developed an astute knowledge of RiskOps and Open Source Intelligence. He is the author of SEON’s Fraud Prevention for Dummies guide.
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