Know Your Customer (KYC)
The regulatory process requiring financial institutions to verify the identity and assess the risk profile of their customers.
What is KYC?
Know Your Customer (KYC) refers to the mandatory process by which financial institutions verify the identity of their clients and assess potential risks of illegal activity such as money laundering or terrorist financing. Required by US Bank Secrecy Act regulations and similar laws globally, KYC involves collecting identity documents (passport, driver's license), verifying addresses, understanding the nature and purpose of business relationships, and monitoring transactions for suspicious activity. Enhanced due diligence (EDD) applies to high-risk customers such as politically exposed persons (PEPs). KYC requirements have expanded significantly since 9/11 and the global financial crisis, creating substantial compliance costs for banks and fintech companies.
Example
When opening a brokerage account at Fidelity or Charles Schwab, investors must provide their Social Security number, date of birth, address, employment information, and investment objectives. This KYC process verifies identity under FINRA rules and allows the broker to file Suspicious Activity Reports (SARs) with FinCEN if anomalous transactions occur.