Know Your Customer (KYC)
Short for Know Your Customer, these are checks that crypto exchanges and trading platforms must complete to verify the identity of their customers.
What Is Know Your Customer (KYC)?
Short for Know Your Customer, this process refers to a financial institution’s obligation to verify the identity of those who use its platform.
Also dubbed Know Your Client, KYC is a crucial part of measures designed to prevent money laundering and terrorism financing.
KYC is a standard practice in the investment industry to ensure that advisors know specific information about their clients — meaning it extends beyond crypto exchanges.
These things can include a client’s investment knowledge, risk tolerance, personal details and financial position. From a crypto perspective, this usually involves requesting photo ID such as a passport or driver’s license.
It is very common for credit companies, banks and insurance agencies to conduct KYC and to require customers to provide all necessary information.
This aims to ensure the customers are not part of corruption or bribery.
KYC policies have risen in importance particularly in the global finance world to prevent illegal transactions.
The policies give financial institutions a blanket of protection to ensure their business is being conducted legally.
KYC processes usually begin with collecting basic data and information about customers in a process known as electronic identity verification.
Details such as a user’s name, birthday, account number and social security details can all be valuable pieces of information when detecting any fraudulent activity or financial crime.
After receiving this information, organizations usually check a database of individuals convicted for corruption to see if any customers may overlap.
The information is often also compared against a list of sanctions or a list of politically exposed persons.
Once that is done, organizations can gauge the level of risk involved in their customers engaging in any corrupt or fraudulent activity.
Crypto exchanges have come under increasing pressure to roll out KYC, amid fears that criminals may be using digital currencies to evade detection.