Know Your Customer (KYC) Definition
Know Your Customer (KYC) is a standard practice in the finance, crypto, and blockchain spheres often enforced by law, requiring businesses to verify the identity, suitability, and risk factors of potential clients or customers. It is a feature of ongoing due diligence that helps to combat illegal activities such as money laundering and fraud.
Know Your Customer (KYC) Key Points
- It’s a process implemented by businesses to verify the identity of customers or clients.
- Prevents illicit activities like fraud, money laundering, and other crimes.
- Mandatory in the finance and crypto sectors, and often backed by law.
- It often involves collecting and verifying customer’s identification details and documents.
What is Know Your Customer (KYC)?
Know Your Customer (KYC) is an important process that businesses, especially in the financial world, implement to have comprehensive knowledge about their customer’s background. It’s a systematic approach where companies check and verify the identity of their clients as an individual or a corporate entity.
Why is the Know Your Customer (KYC) Necessary?
KYC is necessary because it helps in curbing financial crimes, particularly in the realms of cryptos and blockchain. Through KYC, businesses can ensure they aren’t unintentionally providing a platform for money laundering, tax evasion, or other fraudulent activities. Additionally, it provides a safeguard against identity theft and lays a foundation for building trusted client relationships.
Who Requires Know Your Customer (KYC)?
The KYC process is critical for businesses that deal with finances such as banks, digital asset exchanges, online trading platforms, and insurance companies. To a great extent, any company that acts as a store of monetary value or provides a financial service of this nature needs to have an effective KYC policy in place.
When is Know Your Customer (KYC) Implemented?
KYC is typically implemented from the inception or start of a customer-business relationship. Before a customer can access financial or other related services, the business must first capture their personal details and verify these. Certain circumstances, such as a change in account activity or a large transaction, may also trigger a KYC review.
How Does Know Your Customer (KYC) Work?
The KYC process begins when a customer enters a business relationship with a financial entity. The customer needs to present identification details which typically include a government-issued ID, proof of address, and in some cases, proof of income. These documents are then cross-referenced with various databases to ensure authenticity. Once the identity is confirmed and additional risk factors are evaluated, the business proceeds towards establishing or continuing the relationship with the customer.
