Know Your Customer (KYC) is a process that financial institutions and other regulated companies use to verify the identity of their clients and assess potential money laundering or financing of terrorism risks. The goal of KYC is to prevent the use of the company’s services by criminals or terrorist organizations.
KYC is not a license or certification, but rather a process that companies must implement to comply with laws and regulations. This process generally includes collecting and verifying certain information about the customer, such as their name, address, and identification documents, as well as monitoring transactions for suspicious activity.
The specific requirements for KYC can vary depending on the country and the type of company, but in general, it includes the following steps:
- Identification: Collecting and verifying the customer’s personal information, such as their name, address, date of birth, and government-issued identification number.
- Risk assessment: Assessing the customer’s potential risks, such as their likelihood of being involved in money laundering or financing of terrorism.
- Due diligence: Collecting additional information about the customer, such as their occupation, source of funds, and financial history.
- Monitoring: Continuously monitoring the customer’s transactions for suspicious activity.
Examples of the types of information and documentation that may be required as part of the KYC process include:
- A government-issued ID such as passport, ID card, or driver’s license
- Proof of address such as utility bill or bank statement
- Business registration documents or articles of incorporation for corporate customers
KYC is a vital process for financial institutions and other regulated companies to prevent money laundering and terrorist financing and to ensure compliance with laws and regulations. This process is used by banks, money service businesses, virtual currency platforms, cryptocurrency exchanges, and other regulated entities. It is also used by firms in other sectors such as real estate, law firms and other professional services that are exposed to money laundering and terrorist financing risks.
This page was last updated on January 28, 2023.