KYC meaning is Know Your Customer, and it refers to a process that banks and other financial institutions use to gather identifying data and contact information from current and potential customers. Its use is to prevent fraud, money laundering, and other illicit activity, as well as the misuse of financial accounts.
In the US, Banks are legally obligated to use KYC in compliance with the 2001 USA Patriot Act. In 1989, the Financial Action Task Force (FATF) was established to fight money laundering on an international scale. FAFT sets standards and provides recommendations to accomplish this goal through Anti-Money Laundering (AML) practices. Member countries and jurisdictions enforce various laws, rules, and regulations to work with the AML guidelines. KYC and AML are combined to prevent dishonest and criminal financial activity.
Before an individual becomes a customer, financial institutions must first carry out their KYC to verify the stated identity of a potential customer before opening an account. This legal process may vary from bank to bank.
Some identifying documents required by KYC processes include:
• Driver’s License / Government-issued photo ID
• Passport
• Social security number
• PAN card
• Voter ID Card
After providing a customer with an account, banks are required to perform periodic record updates. This means they continue to “recertify” their customers with regular requests for KYC information throughout their banking relationship. They also assign a risk level to their customers and monitor customer transactions to ensure they match expected behaviour.
KYC practices are not limited to banking institutions. Nor are they used just for security purposes. Investment banks use KYC to better understand client needs.
As can be seen, reducing and eliminating money laundering and financial fraud is the clear advantage of KYC practices. While it makes things more complex and time extensive for the customers, the benefits likely outweigh the inconvenience.
In the world of cryptocurrency, there are many instances of people performing illicit activities. Compliance and KYC is therefore very important to ensure that such unlawful activities may be mitigated.
In conclusion, KYC meaning is Know Your Customer, and it refers to a process where banks and other financial institutions use to gather identifying data and contact information from current and potential customers. It has many uses in security, AML and other safety reasons.
