Know your customer
What is Know your customer?
Know your customer, or KYC, is the process of identifying a client, understanding relevant circumstances, and maintaining records required for lawful and appropriate financial service.
KYC records contain sensitive personal and corporate information and require access controls, retention, encryption, and lawful handling. A user interface should show verification status and required action without exposing unnecessary documents. Reverification triggers and unresolved discrepancies should remain auditable rather than being overwritten by the latest submission.
Entity onboarding should map ownership, control, authorized signers, intermediaries, and source of subscription cash rather than treating the corporation's registration document as complete verification. Complex trusts, nominees, and layered holding companies require documented analysis of the natural persons who ultimately own or control the relationship.
Identity and authority
Firms collect and verify names, dates of birth or incorporation, addresses, government identifiers, legal existence, and authority to act. For entities, they identify ownership and control under applicable rules. Documentary and non-documentary methods vary by jurisdiction, customer, product, delivery channel, and assessed risk.
Customer profile
KYC can include occupation or business, source of funds and wealth, expected activity, tax residence, investment objective, risk tolerance, horizon, liquidity, and authorized persons. Not every field serves the same legal purpose. Data collection should be proportionate, accurate, and clearly distinguished from suitability, accreditation, sanctions, and anti-money-laundering checks.
Risk-based approach
Higher-risk relationships can require enhanced diligence, additional evidence, senior approval, and closer monitoring. Relevant factors include geography, ownership complexity, public office, product, transaction pattern, and delivery channel. Risk classification supports controls but should not become an unexplained permanent judgment based on nationality or another crude proxy.
Ongoing maintenance
KYC is not completed once at onboarding. Firms update records after material changes, periodic review, expired documents, suspicious activity, returned correspondence, or new legal requirements. Customer transactions may be compared with the expected profile. Inconsistencies require investigation and documentation rather than automatic acceptance or rejection without context.
Practical implementation
Explain requested data, lawful purpose, privacy, retention, security, and consequences of noncompletion. Use secure upload, validation, duplicate detection, and controlled manual review. Preserve audit trails and separate customer-facing status from confidential internal controls. Requirements differ by jurisdiction, so operating procedures need qualified compliance and legal review.
Also known as: KYC
Sources and further reading
- Know Your Customer, FINRA
- Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements, Financial Crimes Enforcement Network