KYC Compliance

Know Your Customer (KYC)

Before beginning any commercial interaction with a consumer, identification verification is done under the general heading of “Know Your Customer” (KYC). KYC regulations were first exclusively applied to the financial sector, but they were subsequently expanded to include non-financial organisations as well. When carried out across many industries, it is sometimes referred to as KYP (Know Your Patient), KYB (Know Your Business), or KYT (Know Your Transaction).

What is KYC compliance?

Financial and non-financial organisations must comply with KYC regulations. According to the statutory requirements, required organisations create systems for customer identification and regularly check their consumers. Businesses benefit from KYC compliance by avoiding fines, combating fraud, and reducing financial crimes including money laundering and terrorism funding.

KYC compliance process

While KYC laws vary from nation to nation, the following requirements are present in all of them:

  • Create procedures for identifying customers
  • Identify specific clients using their valid identification documents
  • Verify business entities using corporate papers and the beneficial owners as well.
  • maintain customer risk profiles
  • if necessary, take AML compliance procedures

KYC Requirements

Customer Identification Program

Financial institutions are required to collect four pieces of identifying data from clients under CIP, including name, date of birth, address, and identity number.

Customer Due Diligence

All of a customer’s credentials are gathered as part of the CDD process, which aims to confirm their identity and assess their risk profile for questionable account activity.

Enhanced Due Diligence

EDD is utilised for clients who are more likely to be involved in money laundering, terrorism funding, or infiltration, and more data collecting is frequently required. 

Significant KYC laws

AML regimes frequently include KYC rules that are inspired by FATF guidelines. The KYC rules that have been put into place across the world are listed below.

The USA’s Banking Secrecy Act (BSA) mandates that reporting institutions (mainly banks) take the appropriate steps to verify customers and to alert FinCEN to any suspicious activity. According to the US Patriot Act’s requirements, banks must develop customer identification programmes.


To stop criminal conduct, notably money laundering, the U.S. Financial Crimes Enforcement Network (FinCEN) mandates that both clients and financial institutions adhere to KYC criteria. Anti-money laundering, or AML, refers to a variety of procedures and methods used to meet regulatory compliance. AML includes KYC as a component.

Financial institutions are required by FinCEN to comprehend the nature and intent of the client connection and create a customer risk profile that will serve as a starting point for identifying questionable customer behaviour.

Financial institutions must continue to check accounts for shady and illegal activity and preserve up-to-date, correct consumer information. They must submit their results as soon as they are found.

The client identification verification regulations for financial firms are outlined in the French Anti-Money Laundering Act (AMLA).

The UK’s Money Laundering Act of 2017 (MLA) establishes rules for reporting businesses regarding client verification.

The Canadian Proceeds of Crime (Money Laundering and Terrorist Financing) and Terrorist Financing Act (PCMLTFA) establish the procedures and KYC requirements for reporting businesses.

The KYC and AML compliance criteria for client verification of both private individuals and businesses are defined by the AML/CTF Act of Australia, which was implemented by AUSTRAC.

KYC and Cryptocurrency

The bitcoin market is commended for offering a secret, decentralised mode of exchange. However, these advantages also pose difficulties for combating money laundering. Because criminals use cryptocurrencies to launder money, regulatory organisations are searching for methods to enforce KYC on the marketplaces for cryptocurrencies.

Although it is not currently necessary, several cryptocurrency platforms have developed KYC procedures. Requiring cryptocurrency platforms to verify its consumers would align with financial institutions.10

Exchanges that convert between fiat money and cryptocurrency enable transactions. Since fiat money serves as a country’s official medium of exchange, most of these exchanges use some form of KYC, and financial institutions would have screened consumers in accordance with KYC guidelines.

Who is obliged to comply with KYC regulations?

Numerous companies from various industries are subject to the KYC compliance rules. The following is a list of typical entities that, under most international regimes, are required to comply with KYC requirements:

  • Financial services sector (banks, insurers, brokerage firms, mortgage lenders, etc.)
  • Fintech (crypto firms, online payment systems, lenders of digital loans and mortgages, etc.)
  • Real Estate sector
  • The healthcare sector (hospitals, clinics, POM vendors, internet pharmacies, in-home carers, etc.)
  • Gaming sector (online gaming sites, poker and lottery enterprises, etc.)
  • Legal field
  • Dealer in precious metals and fine art

What Is KYC Verification?

To guarantee that brokers have enough knowledge of their clients, their risk profiles, and their financial situations, the investing and financial services sectors utilise the Know Your Client (KYC) verification.

What Is KYC in the Banking Sector?

Bankers and advisers must use KYC in the banking industry to identify their clients, the beneficial owners of firms, and the nature and goal of client connections. In addition, banks are required to monitor and guarantee the correctness of customer accounts as well as examine customer accounts for questionable and unlawful behaviour.

What Are KYC Documents?

Account holders often have to present a government-issued ID as identification. Some establishments need two kinds of identification, such as a passport, birth certificate, social security card, or driver’s licence. Identity verification and address verification are both required. This can be accomplished via identification documentation or a supporting document that verifies the client’s address.

KYC compliance in the digital era

Online KYC is becoming increasingly popular as more companies enter digital marketplaces. Online client verification solutions share a large portion of the compliance load even though not all of the KYC procedure might be outsourced. To meet the expectations of digital customers, online KYC screening provides thorough customer authentication with high accuracy and speed.

The digital identification systems guide was published in 2019 by FATF, a worldwide organisation that develops AML/CTF standards, and it promoted the adoption of digital ID for client onboarding and the provision of digital financial services during the COVID-19 pandemic. Today, a growing number of companies and institutions offer online services and accept clients from across the world.

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