What is Reverification, Why Does it Matter, and How it Helps?

Is the initial KYC process enough to solve this growing fraud problem? Unfortunately, no. KYC, while primarily focused on verifying a customer's identity during onboarding, is just the starting point of the customer lifecycle. Companies need to protect themselves at every stage of the customer lifecycle, and that's where reverification takes place. What is reverification, and why does it matter? Let's find out.

What is Re-verification?

Reverification is part of the ongoing periodic Customer Due Diligence process. As the name indicates, the reverification process takes place after the initial verification of the KYC stage. In most cases, this process occurs to confirm identity information and can be necessary when changes happen to either the organization or the customer.

Types Of Re-verification

The reverification process involves various checks and processes to ensure the ongoing accuracy of customer information and reduce the accompanying risk. These types of reverification include:

1. Identity Verification

People usually use identity verification, and customer re-verification interchangeably. This process mainly confirms customers’ identities through different documents like passports, their drivers’ licenses, or any other official identification that the customer uses. The re-verification part of this process ensures that the customer’s identity remains valid and consistent over time.

2. Document Reverification

The reverification process also occurs to periodically re-verify documents other than IDs, such as proof of address, proof of income, and employment. Document reverification usually takes place to ensure that the customer's contact details remain accurate and up-to-date.

3. Contact Information Update

For effective communication and compliance with AML regulations, banks and financial institutions should do regular updates to verify their customers’ contact details like their addresses, phone numbers, and email addresses. Customer reverification & regularly validating the identity and details of account holders help banks detect and prevent fraud.

4. Business Information Reverification

Corporate clients need another level of reverification, you need to regularly verify their business information, and always be aware of any changes in ownership or structure or key personnel.

5. Source of Funds Reassessment

When you reassess or reverify your customer’s source of funds or wealth on a regular basis, you will be able to detect any discrepancies or potential money laundering activities. Always make sure they align with declared and expected financial activities.

6. Ongoing Monitoring

If you want to get timely detection and mitigation of suspicious activities, you will need to recheck your customers’ transaction history, regularly and continuously.

7. Risk Assessment Adjustment

Things change and so does the risk level of your customers, a customer might be assigned low score when they first join your financial institution, but with time their score might get higher, and thus; you should always take the collected information to re-evaluate the customer’s risk profile.

8. Continuous Reports Review

Sanctions lists, watchlists, PEPs, and adverse media reports, get updated regularly and so should your reports. Rescan customers against these lists to identify any changes.

When is Re-verification Needed? 7 Case Examples

Some common situations where reverification is necessary include:

1. Changes in Key Account Information

When a user changes important account information, such as passwords or contact details, it may signal potential account takeover or fraudulent activity.

2. Expiration of Documents

Reverification of identity documents is required when these documents expire to maintain the accuracy of customer information.

3. Initiation of High-Risk Actions

If one of your customers initiates a high-risk action like for example, if they usually deposit a maximum of $500 per month, then all of a sudden they deposited $9800, the reverification process may be necessary to reduce the risk of money laundering or fraud.

4. Account Reactivation

Assume an account that has been inactive for an extended period is reactivated, this activity prompts the need for reverification to ensure the account owner's identity and to prevent any account takeover or fraudulent activity.

5. Logins from Suspicious IPs or Locations

Let’s say a customer of yours usually logs in to their account from the USA without prior notice. A login from a suspicious IP address or location may indicate unauthorized access to this user’s account and hence necessitate the need for reverification to verify the legitimacy of the login attempts.

6. Security Protocols Post-Data Breach or Fraud

In cases of data breaches or fraud incidents, security protocols require reverification of user identities to detect and prevent further fraudulent activity.

7. Regulatory Compliance

AML and KYC laws and regulations and requirements get updated regularly and this also necessitates reverification to ensure compliance with updated standards and guidelines. The AML verification process involves thorough checks of customer identities against various watchlists to ensure compliance with anti-money laundering regulations. Also, through the reverification of KYC or KYC reverification, financial institutions can detect any changes in customer profiles that might indicate suspicious behavior.

What are the Benefits of Re-Verification? Why is It Important?

The process of re-verification is not exclusive to the financial industry, however, it holds significant importance in the field. Customer reverification ensures that banks periodically & regularly confirm and update their customers' information to maintain accurate records and comply with regulatory standards. Below are the benefits of re-verification and why it is important:

1. Data integrity and accuracy for reliable decision making and compliance. 
2. Security enhancement to enable you to identify and respond promptly and proactively. 
3. Regulatory compliance, especially within the due diligence and Know Your Customer regulations. 
4. Account activity monitoring to be able to spot and identify any suspicious activity or unusual transactions. 
5. Customer relationship management and providing personalized services based on customers' needs and risk profiles. 
6. Enhanced Due Diligence (EDD) especially for high-risk customers.

Challenges Of Re-Verifying Customers

Re-verifying customers poses several challenges, which can vary depending on the industry, regulatory requirements, and the specific circumstances of the business. Some of the key challenges of re-verifying customers include:

1. Customer Friction

Requiring customers to go through the verification process again may lead to frustration and dissatisfaction, especially if it involves providing additional documentation or undergoing additional checks. This can result in increased customer churn or negative feedback.

2. Operational Complexity

Managing the logistics of re-verifying a large customer base can be operationally complex, particularly for businesses with a significant volume of customers. It requires coordination across departments, allocation of resources, and implementation of efficient processes to minimize disruptions.

3. Resource Intensiveness

Re-verifying customers consumes time, human resources, and financial resources. Businesses may need to allocate additional staff and invest in technology and systems to facilitate the re-verification process effectively.

4. Data Privacy and Security

Handling sensitive customer information during the re-verification process raises data privacy and security concerns.

5. Consistency and Standardization

Ensuring consistency and standardization in the re-verification process across different customer segments, channels, and geographies can be challenging. Businesses need clear policies, procedures, and guidelines to maintain uniformity and fairness in the re-verification process.

6. Customer Resistance

Some customers may resist or refuse to undergo the re-verification process due to concerns about privacy, inconvenience, or distrust. Persuading customers to participate in the re-verification process requires effective communication, transparency, and assurance of the benefits.

7. Regulatory Compliance Burden

Regulatory requirements related to re-verification, such as KYC and AML regulations, impose additional compliance burdens on businesses. Failure to comply with these regulations can result in financial penalties, reputational damage, or legal consequences. Banks implement the AML verification process to detect and report suspicious transactions.

8. Technological Limitations

Outdated or inadequate technology infrastructure may hinder the efficiency and effectiveness of the re-verification process. Businesses need modern, scalable, and user-friendly systems, like FOCAL, to streamline re-verification workflows and ensure a seamless customer experience.

9. Risk of Errors and Inaccuracies

The manual nature of some re-verification processes increases the risk of errors and inaccuracies in customer data. Businesses must implement checks and controls to minimize errors and ensure the accuracy of re-verified customer information.

10. Customer Segmentation and Prioritization

Identifying which customers require re-verification and prioritizing them based on risk factors, transactional activity, or regulatory requirements can be complex. Businesses need strong and powerful risk-based approaches and segmentation strategies to allocate resources effectively and focus on high-risk customers.

11. Synthetic Identity Fraud

Synthetic identity fraud has been amplified by the emergence of artificial intelligence tools, such as generative AI, capable of producing high-quality, lifelike fake identities.

Detecting synthetic identity fraud poses a considerable challenge as these fake identities can appear legitimate and pass initial verification checks. As a result, ensuring the security and integrity of the re-verification process becomes increasingly complex, given the evolving sophistication of fraudulent tactics.

What Happens When Reverification Fails?

When reverification fails, it can have various consequences depending on the context, industry, and severity of the failure. Some potential outcomes of failed reverification include:

1. Account Suspension or Closure

2. Restricted Access to Services

3. Increased Scrutiny and Monitoring

4. Loss of Trust and Reputation Damage

5. Legal and Regulatory Consequences

6. Customer Discontent and Churn

7. Identity Theft and Fraud Risks

How Can Re-Verification Help Your Business?

Re-verification offers several benefits for your business. Here is how:

1. Enhanced Security: Re-verification reduces the risk of unauthorized access and fraud by ensuring customer identities are accurate and up-to-date.

2. Regulatory Compliance: Regularly updating customer information helps meet KYC and AML regulations, avoiding penalties and legal issues.

3. Fraud Detection: Re-verification helps detect and prevent fraudulent activities, safeguarding against financial losses and reputational damage.

4. Customer Trust: Demonstrating commitment to security builds trust with customers, increasing loyalty and confidence.

5. Efficiency: Automated re-verification processes streamline operations, reducing manual effort and errors.

6. Adaptability: Re-verification allows businesses to adapt to changing customer circumstances, ensuring services remain relevant.

7. Competitive Advantage: Prioritizing security and compliance differentiates your business and attracts customers in a competitive market.

Conclusion

In summary, reverification is crucial for businesses to ensure updated customer information and compliance. It periodically confirms data, offering benefits like enhanced security and regulatory adherence. Re-verification helps businesses stay resilient and build trust despite challenges like customer friction. The reverification of KYC, also known as KYC reverification, ensures that banks have the most current information on their customers. Integrating re-verification measures can optimize operations and protect against fraud.