Things to know about KYC in finance

Know Your Customer (KYC) describes the key process used in financial services to identify and verify customers, in order to protect against potential risks and serious legal offences like fraud, corruption, and terrorist financing activities. It goes without saying that KYC has a huge part to play in keeping transactions secure and above board – but what else should we know about them?

In this blog post, we break down three things both industry professionals and consumers will find useful to know about KYC in finance.

The data shared and used

KYC checks involve the collection of personal data, so it’s important for consumers to understand exactly what is shared and what is used. Collected information and documents include:

• Personal information like your name, date of birth, home address and nationality
• Identification documents such as your driver’s licence, passport, or national ID card
• Proof of address documents, like a utility bill, bank statement or rental agreement
• Visual data often collected through video verification or a selfie, to match your face with your ID
• Income and occupation details

You’ll usually be asked for most or all of this information when opening a financial account. Financial institutions have to be transparent about how your data is stored and used, so you always have the right to ask when providing it.

How it protects consumers

KYC prevents your ID from being used in scams and other illegal activities. While it might feel like you’re providing a lot of personal data when you open a new bank account, this is essential for protecting your identity, ensuring criminals can’t open accounts or take out loans in your name.

Similarly, KYC is used to identify high-risk individuals, so they can’t act fraudulently even with their own identities. For example, high-risk individuals may be prevented from accessing certain financial platforms or opening a bank account. This helps to keep financial networks secure, further enhancing your personal and financial safety.

Requirement variations

It’s important to know that KYC requirements vary across different countries and regions. In the U.S., there are certain entities that must implement KYC, such as banks and credit unions, money services businesses, fintechs and crypto exchanges, securities and investment firms, and real estate and legal professions.

KYC requirements tend to be looser in emerging markets such as crypto – however, as the industry continues to evolve, the KYC requirements are becoming stricter.

Providing safe and secure financial services

KYC is widely used across countries and different kinds of entities, so understanding what the process involves is crucial for both industry professionals and consumers. Understanding why personal data is collected and how it’s used fosters transparency that both builds trust and keeps consumers’ personal information safe.

KYC is an ongoing process that requires regular reviews, updates and tests to ensure its functioning effectively. For financial professionals and institutions, building a KYC checklist is essential in keeping the process up to date and effective, to continue to provide safe and secure financial services.