Know Your Customer (KYC) is the process by which a financial institution or other obliged entity verifies the identity of its clients before — and during — a business relationship. At its most basic level, this means confirming who the customer actually is: their full name, date of birth, address, and the nature of their business or employment. For companies and legal entities, KYC also involves understanding the ownership structure and identifying who ultimately owns or controls the entity. Based on the obtained KYC information, each client must be given appropriate risk level (usually there would be three level – low risk, medium risk and high risk) and the business relationship must be periodically reviewed based on the risk level.
KYC is not a one-time exercise. EU rules require that customer information is kept up to date and that the level of scrutiny applied is proportionate to the risk the customer poses. A high-risk customer — such as someone from a country with weak AML controls or someone operating in a sector prone to financial crime — will typically be subject to more frequent and more detailed checks. KYC is the foundation upon which all other AML and financial crime compliance activities are built.
