Know your customer (KYC) guidelines and regulations in financial services require professionals to verify the identity, suitability, and risks involved with maintaining a business relationship with a customer. The procedures fit within the broader scope of anti-money laundering (AML) and counter terrorism financing (CTF) regulations. KYC processes are also employed by companies of all sizes for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant and are actually who they claim to be. Banks, insurers, export creditors, and other financial institutions are increasingly required to make sure that customers provide detailed due-diligence information. Initially, these regulations were imposed only on the financial institutions, but now the non-financial industry, fintech, virtual assets dealers, and even non-profit organizations are included in regulations in many countries.

Know your customer requirements

In the United States, the Financial Industry Regulatory Authority (FINRA) Rule 2090 states that financial institutions must use reasonable diligence to identify and retain the identity of every customer and every person acting on behalf of those customers. In enforcing this rule these organizations are expected to collect all information essential to knowing their customers. Information deemed necessary for enforcing Know Your Customer Requirements include the Customer Identification Program (CIP), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD).

Customer Identification Program

Section 326 of the USA Patriot Act requires banks and other financial institutions to have a Customer Identification Program (CIP). Financial institutions must collect four pieces of identifying information about its customers including:

Customer due diligence

The Bank Secrecy Act, the common name for the Currency and Foreign Transaction Reporting Act of 1970 and its amendments and other statutes, established the customer due diligence (CDD) rule as part of an effort to improve financial transparency and deter money laundering. The CDD rule enhances CDD requirements for "U.S. banks, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities. " The CDD rule requires that financial institutions identify and verify the identity of customers associated with open accounts. The CDD rule has four core requirements: Beneficial owner information is required for any individual who owns 25 percent or more of a legal entity and an individual who controls the legal entity.

Enhanced due diligence

Enhanced due diligence is required when initial identity checks have been completed and high-risk factors have been identified for an individual or a business. When these requirements have been met "enhanced" or additional due diligence above and beyond CDD is conducted which identifies the following information:

Know your customer's customer (KYCC)

KYCC or know your customer's customer is a process that identifies a customer's customer activities and nature. This includes the identification of the customer's customers and assessing the risk levels associated with their activities. KYCC is a derivative of the standard KYC process that arose because of the growing risk of fraud obscured by second-tier business relationships (e.g. a customer's supplier).

Know your business (KYB)

Know your business or simply KYB is an extension of KYC laws implemented to reduce money laundering. KYB is a set of practices to verify a business. It includes verification of registration credentials, location, the UBOs (ultimate beneficial owners) of that business, etc. Also, the business is screened against blacklists and grey lists to check if it was involved in any sort of criminal activity such as money laundering, terrorist financing, corruption, etc. KYB is significant in identifying fake business entities and shell companies. It is crucial for efficient KYC and AML compliance. According to the European Union's 5th AML directive, KYB is required for the following AML-regulated entities:

Electronic know your customer (eKYC)

Electronic know your customer (eKYC) involves the use of internet or digital means of identity verification. This may involve checking information provided is valid by using systems to validate ID and proof of address documents or by checking information against government databases such as the official passport database of a country.

Laws by country

Criticism

Criticisms of this policy include: