Know Your Customer refers to the process used by financial service organisations to identify and verify customers.
The term Know Your Customer (KYC) is a customer identification process where a customer's identity, financial status and address are verified. The term is also used to refer to anti-money laundering regulations (AML) that govern banking activities. Knowing your customer – verifying identity, ensuring they're real, confirming they're not on any prohibited lists and assessing their risk factors — makes it easier to keep money laundering, terrorist financing and more run-of-the-mill fraud schemes at bay. Most KYC procedures now run online with optimised online KYC registration processes.
KYC policy incorporates the following steps taken by financial institutions:
- Establishing customer identity; collecting and analysing basic personal identifiable information (the specifics of what is required for this depends on the country of operation).
- Creating and assessing customer profiles based on a customer's transactional behaviour
- Screening identity particulars against global watch-lists to determine the status of public exposure (politically exposed person) and adverse media.
- Determining the risk of a customer, especially in terms of any identifiable tendencies to commit money laundering, terrorist finance, or identity theft.
- Monitoring a customer's transactions against expected behaviour and recorded profile as well as that of peers to understand the nature of a customers transactions.
By first verifying customers' identities and intentions and then understanding their transaction patterns, banks can accurately pinpoint suspicious activities. From there, the bank quantifies how much of a risk its clients appear to be and how likely they are to become involved in corrupt or illegal activity. KYC is an essential part of any financial service providers business. To deliver online financial services, companies need to have methods for remote identification to be aligned with KYC standards. To make the KYC process as uncomplicated as possible simply makes sense.