With millions of entities doing business on the international market, identifying the authentic ones from scammers is usually a very complicated process. Many scammers and cybercriminals on the internet always do their dirty works by impersonating legitimate brands.
However, with the Legal Entity Identifiers system, the verification process has become way easier. All you need is to ask for the entity's LEI number and verify it in the Global Legal Entity Identifier System. So, with the LEI system, the Know Your Customer (KYC) process is made easier, especially for businesses that transact online.
To learn more about GLEIS and its database refer to our separate article about LEI Database.
What is KYC?
KYC stands for Know Your Customer, and it refers to the process of verifying the entity or individual you are doing business with and assessing whether they are suitable or pose a threat to your organization. In simple terms, it is the process of verifying that your customer is what they say they are.
KYC is usually a must for any online platform dealing with payments to avoid cases of fraud, money laundering, and any other illegal activities that involve money. Some of the organizations that have made KYC a must include; payment processing platforms, banks, insurance companies, and many more.
KYC typically goes through three major stages, and these include;
- Checking the identity of the customer. This can be through a passport or national identification card.
- Verify the identity of the customer. This involves confirming that the document they shared is legitimate and matches with the information they had earlier shared about themselves.
- Assessing the potential benefits and risks. After getting and confirming all the information about an individual, the next step is determining their potential benefits and the risks they may pose to your business.
KYC and LEI
Knowing Your Customer doesn't only stop at the individual level; legal entities need to be verified too. Before the introduction of the LEI system, verifying the legitimacy of an entity in the international financial market was a not easy task. However, with the LEI system, you can get to know all the details of the entity you are dealing with in just a few minutes.
The LEI system saves businesses hours of their time that they would usually spend on KYC procedures. The good news is that all the LEI information is free and accessible to the public. This information is also updated every time an entity renews its LEI registration, so all the changes made are updated in real-time.