KYC (Know Your Customer)
Definition
Know Your Customer (KYC) is the process of verifying the identity of clients and assessing their suitability, risk profile, and the legality of their financial activities.
Explanation
KYC is a critical component of AML compliance. Financial institutions must verify customer identities, understand the nature of their business activities, and assess their risk level before establishing business relationships. KYC requirements include collecting identification documents, verifying beneficial ownership, and screening against sanctions lists.
Effective KYC programs help prevent identity theft, money laundering, terrorist financing, and other financial crimes. Regulators require ongoing monitoring and periodic KYC reviews throughout the customer relationship.
Example
A bank opening a new business account requires the company's registration documents, identification of all beneficial owners, and information about the expected transaction volume and business activities.