🔹 Definition
Know Your Customer (KYC) is the regulatory and procedural process by which financial institutions and other regulated entities verify the identity of their customers before (and during) the course of a business relationship. KYC is a cornerstone of AML (Anti-Money Laundering) and CFT (Countering the Financing of Terrorism) frameworks, designed to prevent financial crimes such as money laundering, terrorist financing, identity fraud, and sanctions evasion.
KYC is legally required in most jurisdictions and is enforced by regulators such as FATF, FinCEN, MAS, FCA, HKMA, and others.
🔹 Frequently Asked Questions (FAQs)
Q1: What does the KYC process include?
- Identity verification: Validating government-issued ID, name, date of birth, and nationality
- Address verification: Using utility bills, bank statements, or national registries
- Risk profiling: Assessing customer risk based on occupation, geography, transaction type, and behavior
- Sanctions and PEP screening: Checking against global watchlists, politically exposed person databases, and adverse media
- Ongoing monitoring: Tracking transactions and customer behavior to detect anomalies
Q2: Why is KYC important?
- Prevents criminals from exploiting financial systems
- Helps institutions assess customer risk levels
- Ensures compliance with global and local AML/CFT regulations
- Protects businesses from regulatory penalties, reputational damage, and operational losses
- Enhances customer trust and security
Q3: When is KYC required?
- Before account opening or onboarding
- When a customer performs a high-value or high-risk transaction
- Periodically, based on customer risk level (e.g., every 1–3 years)
- After a trigger event, such as a change in ownership, behavior, or location
- For compliance with sanctions laws and cross-border regulations
Q4: What are the types of KYC approaches?
- Standard KYC: For low- to medium-risk customers using basic verification
- Enhanced Due Diligence (EDD): For high-risk customers (e.g., PEPs, offshore entities)
- Simplified Due Diligence (SDD): For very low-risk customers or products, where permitted
- eKYC: Electronic/digital identity verification, often using AI and biometrics
Q5: What are the consequences of KYC non-compliance?
- Regulatory fines and sanctions
- License revocation or business suspension
- Loss of banking or payment partnerships
- Exposure to fraud and financial crime
- Reputational and legal risk
