Global عربي
KSA عربي
Global عربي
Know Your Customer (KYC) is about much more than filling out paperwork at the bank. KYC entails a sprawling, globe-spanning system that helps combat money-laundering and counter-terrorism financing.
By collecting KYC information, banks and fintechs can assess customer risk and make sure they’re dealing with legitimate entities.
In recent years the rules have been globally standardized, so wherever you live or do business, it’s wise to get familiar with best practices.
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For fintech and investment platforms in the UAE, KYC is mandatory. Compliance is required by law under the country’s anti-money laundering (AML) and counterterrorism framework (CTF).
The UAE central bank, the Securities and Commodities Authority (SCA), and Dubai Financial Services Authority (DFSA) all play important roles enforcing KYC compliance in order to flag suspicious activity (see below for more detail).
International standards set out by the Financial Action Task Force (FATF) and Basel III form the baseline for global KYC compliance.
a-FATF is a Paris-based inter-governmental body that sets global standards for combatting money laundering, terror financing and finance for weapons of mass destruction. It was established by the G7 in 1989, with an initial set of 40 core recommendations that pertain to customer due diligence. FATF regularly evaluates how well countries are complying with these standards.
b-Basel III refers to a set of banking regulations that was issued in the wake of the 2008 global financial crisis. The rules aim to build up the banking sector’s ability to absorb shocks by strengthening regulations and risk management practices.
In the UAE, the two key pieces of regulation are Federal Decree Law No. 20 of 2018, which pertains to anti-money laundering and counter-terrorism financing, and Cabinet Decision No. 10 of 2019, which sets out how financial institutions are expected to comply. Responsibility for oversight is shared across several UAE bodies, each with their own rules (see entities below).
The UAE central bank requires all fintech institutions to implement what’s commonly known as a “risk-based KYC framework”, meaning they should adjust the level of scrutiny depending on how risky the customer is.
Specifically, companies must impose customer identification (CID), customer due diligence (CDD) and enhanced due diligence (EDD) for high-risk clients.
Fintech institutions must use secure digital identity verification tools and assess customer and transaction risks, report suspicious activities, and maintain compliance or else risk financial penalties or license suspension.
The SCA also requires its licensed entities to apply a risk-based AML and KYC framework. This entails running customer due diligence, beneficial-owner verification, and reporting suspicious transactions to the UAE Financial Intelligence Unit.
Regulated firms have to keep thorough records and submit complaints reports twice per year, with strict penalties for non-compliance.
The DFSA is responsible for firms operating in the Dubai International Financial Centre (DIFC). Similar to SCA rules, DFSA mandates that firms do risk-based due diligence, verify customers and beneficial owners, maintain records of at least six years, appoint a MLRO (money-laundering reporting officer), monitor transactions, and report suspicious activity.
AML and CFT laws in the UAE are mainly built around Federal Decree Law No. 20 of 2018 and Cabinet Decision No. 10 of 2019, which themselves are written to make the country compliant with FATF standards.
Under these laws, all financial institutions, fintechs and certain non-bank entities must identify and verify customers, assess risks, maintain records and report suspicious activities through the GoAML platform to the UAE Financial Intelligence Unit.
1- Customer Onboarding and Identity Verification: This ensures that the fintech platform or firm knows precisely who is opening an account before any financial activity begins. Historically this meant collecting documents like passports and proof of address, but nowadays this is largely done online.
1.1 Digital Identity Verification: To verify customer ID, firms now use a variety of digital techniques – from biometric scans and AI document verification to so-called liveness detection, a security feature that confirms that a real person, and not a photo or deepfake, is interacting with them during the onboarding process.
1.2 Document Verification: Firms are responsible for authenticating official documents in order to confirm the identity, nationality, and address of their customers. In the UAE, this means verifying an Emirates ID for residents, a passport for non-residents, and a proof of address, like a recent utility bill or tenancy contract.
1.3 Biometric Verification: Facial features, fingerprints – even voice patterns – can be used to confirm identity. UAE platforms tend to use facial recognition and fingerprint verification, often in collaboration with UAE Pass, the country’s national digital identity verification service.
2- Risk-based Approach: This core concept in KYC means verification and monitoring has to be tailored to the level of risk presented by any given customer. Platforms often classify customers by low, medium, or high risk.
2.1 Investor Risk Profiling: This means assessing an investor’s goals, financial situation, and risk tolerance to make sure the products offered match their capacity and willingness to take risks. This can help flag transactions that seem abnormal for the customer’s known risk profile later on. Normally the profiling is done via questionnaires or algorithms that assess the investor’s risk level.
2.2 PEP and Sanctions Screening: A Politically Exposed Person (PEP) is someone who holds or previously held a prominent public position (government officials, senior executives, or close associates or family members of such individuals). They require enhanced due diligence because of their close proximity to public funds. Sanctions screening means checking the names of customers against watchlists, like those maintained by the UN, US, EU, and UAE cabinet.
2.3 Transaction Monitoring: Modern platforms use AI and rule-based alerts to flag anomalous behavior. Customer transactions are reviewed for any activity that may indicate money launders, terror financing, or fraud. This could mean tracking deposits and withdrawals, trading behavior, and fund transfers and assessing them against the customer’s expected patterns and risk profile.
3. Continuous KYC vs. One-Time Verification: Platforms tend to be required to conduct ongoing KYC versus just one-time verification. UAE regulations stipulate that platforms periodically refresh KYC data and do ongoing due diligence. This usually requires automated systems that monitor transactions in real time, dynamic risk scoring, and PEP/sanctions re-screening.
4. Record keeping and reporting requirements in UAE: The UAE central bank, SCA, and DFSA require financial and investment platforms to maintain records of customer identification data, due diligence documents, transaction histories and risk assessments for at least five years after the business relationship ends.
They must also report suspicious activities to the UAE Financial Intelligence Unit. That can mean filing Suspicious Transaction Reports (STRs), Suspicious Activity Reports (SARs), and Large Cash Transaction Reports (LCTRs).
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1. How does eKYC differ from traditional KYC?
Electronic Know Your Customer (eKYC) uses digital means like biometrics and AI-based ID checks to automate the KYC process and handle it remotely, whereas traditional KYC requires in-person visits and physical document collection.
2. How can fintech platforms minimize onboarding friction while staying compliant?
Fintech platforms can minimize onboarding friction while staying compliant by using biometric authentication, automated identity verification, and risk-based KYC measures that adjust the level of due diligence with the level of customer risk.
3. What are the main risks if KYC is not properly implemented?
If KYC is not properly implemented, firms can face heavy financial penalties, executives can face legal charges, and regulators can revoke a company’s operating license, while fraudulent accounts can ultimately create losses within the company.
4. How often should customer KYC information be updated in the UAE?
In the UAE, customer KYC information should be reviewed based on risk level – high-risk customers typically every 6-12 months, medium-risk customers every 1-2 years, and low-risk customers every 2-3 years, or whenever a customer’s identity documents change.
5. Can KYC processes handle international customers?
KYC processes can handle international customers, with digital technology allowing firms to verify IDs from different countries and maintain compliance with different jurisdictions.
6. How can fintech startups balance compliance costs with user experience?
Fintech startups can balance compliance costs with user experience by making it seamless through their products, like biometric logins, security that triggers extra verification during high-risk transactions, and by breaking the KYC process into steps that happen over time rather than all at once.
7. What are common mistakes in KYC implementation on investment platforms?
Among the common KYC mistakes made on investment platforms are treating KYC as a one-time check, neglecting to update records, applying the same standards to all risk-level customers, and relying on manual data entry, which often leads to incomplete records.
8. How do investment platforms ensure data privacy while performing KYC?
Investment platforms can ensure data privacy while performing KYC by encrypting all data, securely storing customer data so that it is accessible only to authorized personnel, by collecting only the minimum amount of data necessary, by using pseudonyms for customers, and by clearly communicating with customers what data is being collected and how it is used and stored.
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
