KYC (Know Your Customer)
The process of verifying customer identities before opening accounts or facilitating transactions. Required under AML and financial crime regulations worldwide, and helps prevent fraud, money laundering, and terrorist financing.
Why it Matters
KYC is fundamental to the integrity of the financial system. By establishing and verifying customer identities, financial institutions can:
- Prevent financial crime: KYC creates a critical barrier against money laundering, terrorist financing, and other illicit activities by ensuring transparency about who is using financial services.
- Reduce fraud risk: Verification processes help detect identity theft, synthetic identities, and fraudulent account applications before they can cause harm.
- Ensure regulatory compliance: Robust KYC programs help institutions meet legal obligations under regulations like the Bank Secrecy Act, EU Anti-Money Laundering Directives, and local financial crime laws, avoiding significant penalties.
- Build trust: When customers know that rigorous identity checks are in place, it enhances confidence in the financial institution and the broader financial ecosystem.
While KYC processes can add friction to customer onboarding, modern digital identity verification technologies are making these checks faster and more seamless, balancing security needs with customer experience.