Why Does Finance Sector Need to Verify Investors?

Martine Coven


A number of major companies around the globe were inclined to pay penalties worth billions of dollars, for not running proper identity verification systems. This is one of the major reasons why the finance sector requires verification for their customer and investors. So how does investor identification work? And why do organizations need to identify the identity of their customers? Let’s get right to it. 

What is KYI (Know Your Investor)?

KYI is referred to as Know Your Investor which is very much similar to the KYC referred as Know Your Customer is a verification process that takes place when a shareholder, vendor, or investor is about to engage with an organization for financial means. 

KYI and KYC are step parts of the AML (anti-money laundering) set of mandates. All AML rules and regulations are implemented to keep individuals away from money earned through bad practices. This aids in reducing risk, finance-related fraud, and terrorist or criminal funding. 

But KYI is not just utilized to prohibit fraudulent activities, it is also used to mitigate risks and have a better explanation of the investor behavior. However, verifying the investors’ identity may sound like a hectic initiative but it is also a good opportunity to prohibit fraud-related crimes. 

These days, KYI is performed digitally, and the process seems effortless, submitting a scanned image of the user’s passport or the ID card along with the proof of address and other required documents necessitated by the regulatory bodies. 

The backend process for know your investor system kind of looks like this: 

  • Investor Identification: For investor identification, investors provide pictures, documents for proof of address, and provide sensitive details about them
  • Investor Due Diligence: Investor due diligence refers to the process when the system searches for the individual in local or international blacklist databases and runs a complete background on the person applying for investor verification. 
  • Ongoing Monitoring: Businesses keep tabs on their investors’ financial activity on an ongoing basis and look for any irrelevant or unexpected change in the financial behavior of the investor. 

Why is it so Crucial?

KYI is crucial because it assists businesses in ensuring that they do not tolerate any illicit or bad practices. It is a customary requirement for businesses and organizations around the globe and aims to mitigate business risks, moreover, it prevents businesses from getting penalized for hefty fines. 

Advantages of Investor Verification

Better Protection

The ultimate advantage for investors is that it guarantees their data safety. After finishing the verification process, businesses can guarantee the protection of investors’ personal information and defend them against identity fraud. 

Easy Restoration

As Investors share their important data with investor verification service providers, they can simply restore their account in case the client forgets their passcode or has trouble logging in. All the data is streamlined and online, which makes it simple and a lot quicker to sign up and way better than doing all of this manually. 

No Legal Issue

As a financial commodity, investor verification solution providers have to follow specific regulations in order to operate in those jurisdictions. 

By KYI implementation, these solution providers adhere to global laws and regulations and invest the company’s funds and provide them with high benefits. 

After following the KYI process, users do not have to be worrisome when it comes to legal problems. A robust KYI verification system restricts fraudulent activities, which ensures users to not worry about getting in trouble. 

KYC AML Regulations for P2P

The European Capital Markets Union, which is part of the European Council, establishes the rules for all financial institutions in Europe, including peer-to-peer lending channels. When it refers to identity validation, AML laws are perhaps the most significant rules and regulations. These prevent criminals from laundering money and funding unlawful operations.

Despite the fact that AML rules differ by nation, all financial institutions in the EU must adhere to the European Law on the prohibition of terror financing and money laundering. These are known as AMLDs (Anti-Money Laundering Directives), and they are reviewed regularly.

The 5AMLD went into effect in January 2020, mandating financial institutions to undergo more stringent customer due diligence and get a clear understanding of their customers. 6AMLD entered into force in June 2021, with the sole purpose of closing the loopholes and punishing both those who assist bad actors and bad actors themselves.

All of these rules are necessary to safeguard user accounts, personal information, and P2P investment opportunities.


Even though it might seem inconvenient, proving one’s identity is critical to protecting their data and lowering the amount of illegal activity around the globe. It also helps in document verification. It assists businesses and the financial sector in keeping their distance from illegal activities and opens more investment opportunities for the investors as well, as they are now accredited and verified individuals businesses will be more open to the idea of engaging with them. 


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