KYC

What is KYC?

Know Your Customer (KYC) is a regulatory and legal process used by financial institutions and other regulated entities to verify the identity of their clients. The purpose of KYC is to prevent identity theft, fraud, money laundering, and terrorist financing. The process involves collecting and verifying personal information from clients, such as their name, address, date of birth, and identification documents like passports or driver's licenses. Additionally, KYC may include assessing the client's financial background, source of funds, and ongoing monitoring of transactions to detect suspicious activities. By implementing KYC procedures, organizations ensure they are conducting business with legitimate and trustworthy individuals, thereby enhancing the security and integrity of their operations and compliance with regulatory requirements.

The KYC process typically begins at the onboarding stage and requires the collection of personally identifiable information (PII), including full legal name, date of birth, residential address, and nationality. Clients are also required to submit official identification documents such as a government-issued passport, national ID card, or driver’s license, along with proof of address (e.g., utility bill or bank statement). In some cases, service providers may use biometric verification, selfie checks, and video identification as part of enhanced KYC.

Beyond identity verification, KYC may also involve assessing a customer’s financial profile, source of funds, expected transaction volume, and intended use of services. This helps determine the customer’s risk level and ensures the business relationship aligns with its internal compliance policies and legal obligations under Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) frameworks.

KYC is not a one-time activity but an ongoing process that includes continuous monitoring of customer behavior, transaction patterns, and potential red flags. High-risk customers may be subject to periodic reviews, especially if their activity deviates from the disclosed profile or if regulatory conditions change. In the context of cryptocurrency services, KYC plays a crucial role in bridging the gap between decentralized assets and traditional compliance systems. Many crypto exchanges, payment processors, and wallet providers are required by law to implement KYC to ensure transparency, regulatory adherence, and public trust in their platforms.