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KYC: What is Know Your Customer and what does it involve?

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TrustCloud | KYC: What is Know Your Customer and what does it involve?

Know Your Customer (KYC) is a process used by financial institutions and other businesses to verify customers’ identities and assess risks associated with business relationships.


he primary goal of KYC is to prevent illegal or fraudulent activities, such as money laundering and/or terrorism financing. Its scope however extends to other areas and is crucial for establishing a fair and transparent relationship between users and businesses from the outset. 

KYC: what it is and what it entails 

The KYC process involves several phases that can essentially be defined as follows: 

  • Information collection. The company gathers information on the customer, which may include personal data, contact information, occupation, source of income, purpose of the business relationship, etc. 
  • Identity verification. With digitization, this aspect has changed dramatically. Banks and companies of all types rely on identity verification solution providers to build a robust KYC process and streamline operations. Because of this, biometrics analysis, document analysis, and electronic signature tools have been brought to the forefront. 
  • Risk assessment. The company determines the level of associated risk and establishes a score or trust score. Scrutiny is particularly intense for individuals operating in high-risk industries or conducting large transactions. 
  • Continuous monitoring. To identify any unusual or suspicious activity. 
  • Information updates. The company should not be complacent. It should require the customer to update their information regularly. 

Crucial component for international compliance 

KYC is crucial for complying with anti-money laundering (AML) and counter-terrorism financing laws and regulations. Additionally, it protects companies by ensuring they are doing business with legitimate customers and avoiding involvement in illicit activities. Most countries have their own local laws and regulations in this regard, which impose KYC practices on financial institutions and other companies. Here are some examples: 

The European Union’s Anti-Money Laundering Directive establishes KYC requirements and due diligence procedures for financial institutions and companies offering money-related services. 

In the United States, the USA PATRIOT Act provides the legal framework for these requirements, while the Bank Secrecy Act (BSA) requires the establishment of compliance and monitoring programs to prevent illegal activities, including KYC procedures. 

In Singapore, the Monetary Authority of Singapore (MAS) is responsible for issuing guidelines and regulations on KYC for financial institutions under its jurisdiction. Australia and Canada also have very robust legislative frameworks that even serve as a basis for new proposals worldwide. 

KYC benefits for users of all types of companies 

KYC applies not only to traditional financial institutions but also to a variety of industries such as real estate, fintechs, casinos, and betting houses. Each industry may have its own specific KYC requirements, depending on local laws and regulations. 

These protocols benefit not only the companies but also provide protection to the customers themselves. They ensure that their data is being handled responsibly and with maximum security, and not being used fraudulently in their name. 

Additional advantages of Know Your Customer 

In addition to being a shield against fraud and an ally of the most demanding legal frameworks, Know Your Customer offers additional benefits: 

  • Risk management: By thoroughly understanding customers and assessing the risks associated with the business relationship, companies can make more informed decisions about how they interact with their customers. This includes the insertion of further security measures or restrictions for certain high-risk customers. 
  • Enhanced customer experience: Although KYC may be perceived as a cumbersome process, when designed efficiently, it enhances the overall customer experience by reducing wait times and providing security and trust. 
  • Personalization: In-depth knowledge of customers allows companies to tailor their services and product proposals to the specific needs and preferences of each customer. 
  • Empowerment of marketing and sales: The information collected during the KYC process can be valuable for developing more effective marketing and sales strategies. It allows companies to segment customers based on their profiles and preferences, making it easier to tailor campaigns. 
  • Internal procedures: KYC is key to a well-structured business. It streamlines internal processes at all levels, from account management to invoicing and transaction tracking. 
  • Building trust and reputation: By demonstrating a commitment to security and legality through KYC, a company can build a reputation of trust and transparency in the market, resulting in an increase of customers and business partners. 

 Digitalization for AML process improvement and onboarding 

Prior to digitisation, the KYC process involved the physical collection of identity documents and other relevant information that was manually verified by the institution’s staff. This resulted in slower and less efficient procedures, with longer response times and higher potential for human errors or fraud. However, with the rise of digitisation, electronic identity verification technologies have been introduced, including the use of algorithms and specialised software to authenticate documents.  Companies can now access online databases and information sources to verify the information provided by the customer, significantly reducing response times. Furthermore, electronic signature solutions or intelligent document analysis reduce the risk of errors and fraud. This transformation has also allowed companies to keep up with ever-changing regulations, improve onboarding procedures and work on mechanisms for continuous adaptation. 

Differences between KYC and KYB (Know Your Business) 

KYB focuses on knowing and validating information of other companies, business partners, suppliers, or corporate customers with whom a company interacts. Its primary goal is to ensure that the entity is dealing with legitimate organizations and is complying with all legal regulations and requirements related to its business partners. The key differences between KYC and KYB are fundamentally: 

  • KYC focuses on individuals, preventing illegal activities related to them, while KYB is oriented towards commercial operations, ensuring legitimacy and regulatory compliance in business relationships. 
  • While KYC collects information on the identity, occupation and sources of income of individuals, KYB focuses on the legal structure, ultimate beneficial owners and business address of companies. 
  • KYC is relevant, especially in financial institutions, but KYB is essential in a wide variety of industries to guarantee business relationships with legitimate institutions. 


KYC is not just a regulatory requirement or an administrative process, but an essential tool for establishing reliable and ethical business relationships from the outset. Its deployment benefits both firms and customers and reinforces trust and integrity in today’s marketplace. 

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