KYC is short for “Know Your Customer.” It is a process that financial institutions and other regulated companies use to verify the identity of their customers and to assess potential risks of illegal activities such as money laundering, terrorist financing, or fraud. KYC typically involves collecting information about a customer’s identity, such as their name, address and date of birth then verifying that information through government-issued documents. KYC also involves monitoring customer transactions and activities for suspicious or unusual behaviour. The goal of KYC is to help prevent financial crimes, protect institutions from legal and reputational risks, and maintain the integrity of the financial system.
What is AML?
AML is short for Anti-Money Laundering. It is a set of policies, procedures, and regulations aimed at preventing criminals from disguising the proceeds of illegal activities as legitimate funds. These AML measures are designed to prevent money laundering, terrorist financing, and other financial crimes. KYC and AML are interconnected, and KYC is a critical part of AML compliance. The KYC process help institutions to gather the information necessary to verify their customers’ information, and AML measures help them to detect and report suspicious activity.
The KYC verification process
This may vary depending on the institution and the type of customer. However, below are the steps that are typically involved:
- Personal information:
- The customer has to provide and verify their personal information, such as name, address and date of birth with government-issued identification documents (such as passport, driver’s license, or national ID card).
- Document verification:
- The institution verifies the authenticity of the customer’s documents by comparing them with relevant government databases and conducting other verification checks.
- Identity verification:
- The institution verifies the customer’s identity by using various methods, such as asking the customer to provide additional information.
- Risk assessment:
- The institution assesses the potential risks associated with the customer’s transactions and activities, such as the risk of money laundering, terrorism financing, or fraud.
- Monitoring:
- The institution monitors the customer’s transactions and activities for suspicious or unusual behaviour and conducts periodic reviews to ensure that the customer’s information is up-to-date.
- Approval or rejection:
- Based on the above steps, the institution approves or rejects the customer’s application.
