Know Your Customer (KYC) is a crucial component of a Customer Identification Program (CIP) employed by financial institutions.
KYC is a set of processes and procedures designed to verify and understand the identity of customers. It involves the collection and analysis of specific information about individuals or entities to ensure compliance with regulatory requirements and to mitigate the risk of financial crimes, such as money laundering, fraud, and terrorist financing.
KYC typically includes the verification of personal details, official identification documentation, and, in some cases, the assessment of the customer’s risk profile.
The goal of KYC is to establish the legitimacy of customers, foster transparency, and enable financial institutions to make informed decisions when entering into business relationships or conducting transactions.
Compliance with KYC regulations is essential for financial institutions to maintain the integrity of the financial system and adhere to anti-money laundering (AML) and counter-terrorist financing (CTF) standards.