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 and product basis. Fintech businesses and the Banking industry typically require 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 problem or potential links to terrorist organizations, bribery, corruption, and individuals with a history of money laundering.
KYC is an important measure in anti-money laundering regulations, making it a safety guard for cryptocurrencies. Financial institutions and regulated service providers such as Tap boast robust KYC processes to protect our consumers so that you can feel more confident that your funds will remain secure no matter the business environment or exchange circumstances.
How does it work?
Within the Finance sector in the global market, any company or project must meet strict rules and regulations that require them to have rigorous individual identification checks (also called regulatory compliance) such as verification of address information, and 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 a passport, ID card, driving license)
- A proof of residence
- A selfie (to verify 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/exchange using the service of the company.
Failing to adhere to KYC regulations can lead to reputational damage and penalties served by the body in charge.
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 the United States, KYC and AML processes are driven by financial crime prevention legislations such as The Bank Secrecy Act (2001) and Patriot Act (2006).
Internationally, there's a consensus that the FATF should lead in coordinating multinational cooperation on regulatory conditions. This ensures consistency and effectiveness in combating financial crimes like money laundering and terrorist financing.
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, and protect 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. Trade crypto with confidence with regulated companies like Tap boasting robust KYC procedures to safeguard its customer assets and information.
In conclusion
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 cryptocurrencies as well as customer assets by preventing fraudulent activity. KYC in the Fintech or Bank sector is generally imposed on new customers who open a new account and typically involve on-going monitoring.
This article is for general information purposes only and is not intended to constitute legal or other professional advice or a recommendation of any kind whatsoever and should not be relied upon or treated as a substitute for specific advice relevant to particular circumstances. We make no warranties, representations or undertakings about any of the content of this article (including, without limitation, as to the quality, accuracy, completeness or fitness for any particular purpose of such content), or any content of any other material referred to or accessed by hyperlinks through this article. We make no representations, warranties or guarantees, whether express or implied, that the content on our site is accurate, complete or up-to-date.
