“Know Your Customer” (KYC) refers to the process that businesses and financial institutions undertake to verify the identity of their customers or clients. It is a regulatory requirement in many jurisdictions and is particularly prevalent in the financial sector, including banks, insurance companies, and investment firms.

The main objectives of KYC procedures are:

Identity Verification: The first step in KYC is to confirm the customers’ identity. This typically involves obtaining official documents such as a passport, driver’s license, or national ID card.

Risk Assessment: KYC also involves assessing the risk of engaging with a particular customer. This includes evaluating factors such as the customer’s background, financial history, and the nature of their transactions.

Prevention of Fraud and Money Laundering: One of the primary purposes of KYC is to prevent financial crimes such as money laundering, terrorist financing, and fraud. By verifying the identity of customers and monitoring their transactions, financial institutions can detect and report suspicious activities to the relevant authorities.

Compliance with Regulations: KYC is a legal requirement in many jurisdictions, mandated by regulatory authorities to combat financial crime and protect the integrity of the financial system. Failure to comply with KYC regulations can result in hefty fines and damage to the business’s reputation.