What is KYC Remediation? 4 Steps and Key Tips For AML Compliance

The KYC lifecycle consists of multiple processes that must be fulfilled for a business or a financial institution to comply with anti-money laundering rules and regulations. Onboarding, due diligence, and key remediation are such processes. It is important for any business to know that all KYC processes are equally important and that each one is complementary to the overall process.

Below, we explain the KYC remediation process and how it integrates into the larger and broader KYC lifecycle. You'll also learn about the main steps in the KYC remediation process, which will help you develop a strategy that aligns with your business goals and objectives.

If you would like to read more about other KYC-related topics, we suggest that you check the following topics out:

• What Is a KYC Document? Why Is It Necessary?

• Your Guide to KYC Onboarding Process and AML Requirements

• 10 Best KYC Software Solutions & Tools Reviewed in 2024

• KYC Checklist: A 3-Step Compliance Checklist for Businesses and Financial Institutions

What is KYC?

KYC is an abbreviation for Know Your Customer, which is the process of knowing your business customers. By knowing them, we mean ensuring their identity is real for AML compliance purposes. The KYC process occurs when opening an account or processing transactions.

Customer identity verification, customer due diligence, and ongoing monitoring are the three main/primary components of KYC.

KYC Regulations and Requirements

Different regulators, like the Financial Action Task Force (FATF) or OFAC, make sure these rules are clear, and every institution must follow them.

At the heart of KYC regulations are three main steps: customer identification, customer due diligence, and ongoing monitoring. First, institutions must know who their customers are by verifying their identity and business information. Next, they assess the risk of doing business with them—like where their money comes from and how they use it. After that, the bank keeps an eye on the customer to make sure nothing changes over time.

If financial institutions ignore these rules, they’re at risk of serious trouble: fines, legal issues, and a damaged reputation. Big penalties in the past have taught us that staying compliant with KYC regulations is a must.

What is KYC Remediation?

We’ve explained that to comply, financial institutions must verify the identities of their customers. So, how does this happen? Essentially, the institution collects data and documents that prove the entity is who it claims to be. Some of these key documents are governmental IDs or passports. In some industries, a device or browser fingerprint is also collected amongst the other key documents required.

If a customer opened their account in 2010, the submitted documents might not be accurate today, thus, the documents will need to be revisited to ensure no names have changed, for example, as some people change their names when married, and this is one of the KYC remediation examples.

The revisiting piece is what the KYC remediation is about. It is the ongoing periodic review, update, and confirmation of customer profiles or information. KYC and AML remediation are mostly done to confirm that the documents you have are still accurate and make sure you’re still up to date with the latest KYC regulations (of course 2010 KYC regulations are not the same as of 2025).

4 Steps of the KYC Remediation Process: How It Works

The more steps are automated, the easier it is for you and your team to focus on tasks that cannot be automated. Automation also minimizes the chances of human errors and hence increases AML remediation accuracy.

Step 1: Identify the Gap

The first step of KYC refresh process is to identify outdated data and high-risk clients. But when your institution has a large number of clients, it is important to follow a strategic approach to which customers you would target first.

For example, in the KYC refresh process, it might be wise to start with those who haven’t made any transactions that deviate from their normal pattern for a long period because it might mean that the person in question has passed away or is avoiding dealing with your institution.

Step 2: Collect Missing Customer Identity Data

This step needs interaction with your customers to gather the documents required to update the existing records. A KYC remediation example: if a customer has an expired government ID on file, the customer should be contacted to provide a valid one for updated verification requirements.

In this step, financial institutions should be aware that their communication with customers must be clear and specify:

• What is required exactly?

• What will happen if this requirement is not met? For instance, account suspension or deletion.

• When is this due?

Step 3: Add Updated New Data to CRM

As simple as it may sound, this step will save you time and effort in the long run and help you keep track of all actions taken on all your customers’ profiles.

This also includes cleaning the data that is invalid or not needed anymore. This might sound simple and obvious, but it is also crucial to comply with any record-keeping laws your business/institution is subject to.

Your data quality directly influences the outcomes you achieve. The more unnecessary or invalid data you keep, the higher the risk to your business or institution. Cleaning and streamlining data, on the other hand, minimizes liability and reduces risk.

Reporting is also part of this step; when the institution updates its internal records with new information, any new relevant information that requires reporting must be reported to regulatory authorities.

Step 4: Assess Risks

If a customer opened an account when he was scored low-risk, today, this same customer’s work status might have changed and will need enhanced due diligence. Risk levels change over time, and your records must follow these changes.

Why KYC Remediation is Important

Regulations change, customer information grows old, and mistakes happen. That’s why KYC remediation is a must for financial institutions. Simply, it’s about cleaning up and fixing old customer records to ensure they meet today’s rules. It’s important when a bank works with outdated systems or customers that have been around for a while, as their data might not match the latest requirements.

Let alone that if a business doesn’t update its customer records, it risks fines, bad decisions, and losing customer trust, but also, outdated data makes it harder to catch money laundering and fraud red flags.

Financial remediation can also help build stronger relationships with clients. The cleaner and more accurate the data, the better a bank can understand its clients and offer tailored services. This proactive approach in financial remediation ensures remediation in banking becomes a win-win for both compliance and customer care.

4 Tips for Creating a Successful KYC Remediation Process

1. Focus on High-Risk Clients First: Start by looking at the customers who present the most risk. Not every client is the same—some may be from high-risk countries or have complex business structures that make them harder to evaluate. Others may be Politically Exposed Persons (PEPs), which comes with its own set of challenges, so prioritize your remediation KYC resources for maximum impact.
   

2. Use Technology to Simplify the Process: To properly and efficiently handle large volumes of customer data, you will need AI-powered verification tools to automate data validation and speed up the process. If you're looking for the best KYC software for your business, we recommend you read this review: The Best 10 KYC Software Solutions in 2024 Reviewed.

3. Make Cross-functional Collaboration: KYC remediation isn’t just the compliance department’s problem, to succeed, the whole business needs to work together. From the IT team ensuring smooth data integration to customer service helping gather updated documents, it’s a group effort. This means everyone should get on the same page and work towards the remediation KYC process goal.

4. Be Transparent: To reduce the amount of institution-customer friction resulting from this process, let the customers know why this is important and how it benefits both them and the institution. Clear and easy-to-follow steps as well as transparent communication will reduce customer frustration.

Streamline KYC Remediation with FOCAL

FOCAL platform provides a comprehensive identity verification solution that helps you manage the entire KYC process. This includes everything from onboarding new customers to monitoring their activity and fixing any issues that arise. FOCAL flexible system lets businesses set up processes that work best for them.

When it comes to verifying identities, FOCAL offers a variety of options. You can choose from government ID checks, document reviews, selfie verification, and more. This means you can gather the right information for your needs during the onboarding process.

FOCAL also gives you tools to better understand your customers. You can check customers against important lists, like sanctions lists, and databases of politically exposed persons (PEPs). This helps you build a complete picture of each customer's risk level.

Conclusion

There are two parts to the KYC process: verification and remediation programs. KYC remediation ensures that customer data remains accurate and up to date, which is essential for meeting evolving regulations and reducing risks associated with financial crimes.

The KYC remediation process includes key steps like data collection and risk assessment, all aimed at enhancing the organization’s understanding of its customers. By focusing on high-risk clients, using technology, encouraging teamwork, and maintaining clear communication, institutions can develop a successful KYC and AML remediation strategy.