KYC stands for Know Your Customer. KYC is a regulatory and legal requirement for banks and other related institutions to identify and verify the identity of their clients. The term can also be used by businesses to denote their own similar processes.

Banks/Institutions undertake such processes to comply with various anti-money laundering (AML) regulations and also regulations countering the financing of terrorism (CFT). KYC is a way to prevent banks/institutions from becoming involved with criminal or terrorist activity. KYC is accomplished by verifying various documents obtained from reliable sources. These documents may include one or more of the following:

  • Legal name
  • Valid date of birth
  • Phone number
  • Picture of passport or a valid government issued ID (front and back)
  • Legible selfie with the above mentioned identification document
  • Physical Address (a utility bill or similar document may be required as proof)

The goal is to identify and investigate suspicious activity. In addition to protecting the banks or institutions from inadvertently being used for criminal or terrorist activities, the KYC process also protects the clients as it helps avoid instances of identity theft and fraudulent activities on the accounts. KYC regulations are local, and differ from country to country. Jurisdiction is also, on a country to country basis.

What is AML?

Standing for "Anti-money Laundering", it is a set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions. In most cases money launderers hide their actions through a series of steps that make it look like money coming from illegal or unethical sources was earned legitimately.

The FATF(Financial Action Task Force on Money Laundering ) calls upon all countries to take the necessary steps to bring their national systems for combating money laundering and terrorism financing into compliance with the new FATF Recommendations, and to effectively implement these measures.

Again, as in the case of KYC, financial institutions and/or regulated companies are responsible for the implementation of internal AML policies.

AML regulations are also local, and differ from country to country. Some countries choose a top-down approach, inheriting much of their AML policies from the FATF, while others go for a bottom-up approach and then have to reconcile both policies. Extreme countries where such reconciliation is impossible (generally due to Government unwillingness) are excluded from the FATF membership, with the corollary of increased complications to access the international markets and financing.