Know your customer also known as "KYC" is a regulatory requirement imposed by the Financial Crimes Enforcement Network to combat money laundering, terrorism financing, and fraud prevention. The requirements for KYC are determined on an industry-by-industry basis. Fintech businesses and the Bank sector typically requires KYC of customers who open a new account with them.
KYC ensures that financial institutions know their customers' identity well enough to understand where funds came from for deposits or how payments will be made before starting to use the company's services. KYC is an efficient first line of defense in combating terrorism financing by verifying customer identities to help identify any potential links to terrorist organizations, bribery, corruption, individuals with a history of money laundering.
KYC is an important measure in anti-money laundering regulations. Financial institutions and regulated service providers such as Tap boast robust KYC process to protect our consumers so that you can feel more confident that your funds will remain secure no matter the business environment circumstances.
How does KYC work?
Within the Finance sector, any company or project must meet strict rules and regulations that require it to have rigorous identification checks (also called regulatory compliance) such as verification of address information, validation of residency status. Apart from verifying a customer's identity, it's also important to confirm the user's location and address. Your identity documents will provide basic data like your name and date of birth, but more is needed to establish your residence, for example.
During a standard Know Your Customer process, you will be asked for several documents:
- A proof of identity ( such as passport, ID card, driving license)
- A proof of residence
- A selfie (to prove that it's you)
The KYC must be completed at the initial stage as well as on an ongoing basis so that businesses can deliver services or goods to clients. It is a best practice for any business offering financial services to re-verify the identity of their customers at regular intervals to ensure AML. Sometimes new customers have to go through several steps of verification before they can start any financial transaction/investment using the service of the company.
KYC Around The World:
KYC regulations can vary from country to country, but there is a lot of international cooperation on the basic data information needed. For example in America, KYC and AML processes are driven by financial crime prevention legislations such as The Bank Secrecy Act (2001) and Patriot Act (2006). In Europe, KYC compliance regulation falls under EU Anti-Money Laundering Directive with PSD2 providing additional regulatory guidance for all countries within the Union. Internationally however it's been agreed that FATF should coordinate multinational cooperation when it comes to regulatory conditions.
The Benefits
In spite of the time it takes to set up accounts, KYC identity verification is worth it when taking into account the benefits, keeping your funds safe, protecting you from identity theft, fraud, and other illegal activities is largely the result of robust KYC control. These procedures ensure that financial service providers are not only safe but trustworthy.
In short: KYC is a common regulatory requirement that financial service providers are obliged to fulfill in order for businesses to operate under the law and consumers should take KYC seriously. KYC requirements differ across the financial sector. It is a necessary measure in anti-money laundering regulations, making it an important safety guard for customer assets by preventing fraudulent activity. KYC in the Fintech or Bank sector is generally imposed on new customers who open a new account.