Know your customerKYC

The legal duty to know who your customers are before serving them.

Before a bank opens an account or a payments company moves money for someone, it has to confirm who that person is and understand why they want the service.

Regulated obligation to identify and verify customers and understand the purpose of the relationship.

Know your customer (KYC) programs typically include several parts:

• Customer identification, which collects and verifies identifying details such as name, date of birth, address, and an ID number.
• Customer due diligence, which assesses the customer's risk and the expected nature of the relationship.
• Enhanced due diligence, which adds deeper checks for higher-risk customers.
• Screening, which checks the customer against sanctions lists, politically exposed person lists, and adverse media.
• Ongoing monitoring, which keeps checking activity and risk after onboarding.

A KYC check at onboarding usually runs in these steps:

1. The customer provides identifying information and documents.
2. The institution verifies the identity, often with a document check and a selfie.
3. It screens the customer against watchlists.
4. It assigns a risk level and decides whether to approve, decline, or apply extra checks.

The Financial Action Task Force (FATF) sets international standards for anti-money laundering, which countries turn into national rules, so KYC requirements vary by country and sector.

KYC sits next to terms that are easy to mix up:

• Anti-money laundering (AML) is the broader set of controls, and KYC is one component of it.
• eKYC is KYC completed digitally, without a visit in person.
• Identity verification (IDV) is the step that confirms who a person is, which KYC uses.

For more, see Understanding KYC Documents for Effective Verification.