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Know your customer orknow your client (KYC)[1][2] guidelines and regulations in financial services require professionals to verify the identity, suitability, and risks involved with maintaining abusiness relationship with a customer. These procedures fit within the broader scope ofanti-money laundering (AML) andcounter terrorism financing (CTF) regulations.
KYC requirements have evolved from simple identity verification into comprehensive risk management frameworks designed to prevent illicit financial activity. These procedures enable institutions to further understand their clients financial behaviour, identity, transactions, and aids in assessing exposure tomoney laundering and/or fraud. In addition to verifying personal or corporate identities, modern KYC standards often include customer and enhanceddue-diligence for higher risk clients, ensuring compliance with global 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 detaileddue-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.
 | The examples and perspective in this sectiondeal primarily with the United States and do not represent aworldwide view of the subject. You mayimprove this section, discuss the issue on thetalk page, or create a new section, as appropriate.(November 2025) (Learn how and when to remove this message) |
In the United States, theFinancial 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.[3] 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 thecustomer identification program (CIP),customer due diligence (CDD), andenhanced due diligence (EDD).[4]
Section 326 of theUSA Patriot Act requires banks and other financial institutions to have aCustomer Identification Program (CIP). This act requires financial institutions to at minimum, verify the identity of anyone looking to open an account, maintain records of this information, and verify if this person is on the list of known or suspected terrorists that financial institutions are provided by the U.S government. Financial institutions must collect four pieces of identifying information about its customers including:
TheBank Secrecy Act, the common name for theCurrency and Foreign Transaction Reporting Act of 1970 and its amendments and other statutes, established thecustomer 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.[5]" 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:[5]
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.[5]
Enhanced due diligence[6] is required when initial identity checks have been completed and high-risk factors have been identified for an individual or a business. These measures may be needed based upon factors such as the jurisdiction the customer is based in, the products they are using, or the nature of the customer. When these requirements have been met "enhanced" or additional due diligence above and beyond CDD is conducted which identifies the following information:[6]
Know your customer's customer (KYCC) 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.[7]
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).[7]
KYCC is not just an issue of legal compliance, you need to know the beneficiaries of your client in order to protect your business from various risks, which can include the infiltration of illegal funds into your organization. By extending the steps of know your customer to all of your client's various connections, proper due diligence can be exercised.[citation needed]
Know your business (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 asmoney laundering,terrorist financing,corruption, etc. KYB is significant in identifying fake business entities andshell companies. It is crucial for efficient KYC andAML compliance.
According to the European Union's 5th AML directive,[8] KYB is required for the following AML-regulated entities:
Know your business (KYB) protocols typically include verifying business activities to determine whether they align with a company's risk tolerance. High-risk sectors may includegambling facilities,money services businesses, andadult entertainment industries, among others. KYB service providers such asLexisNexis andEnigma Technologies offer data and ongoing monitoring solutions that enable verification during both initial onboarding and throughout the entire business relationship lifecycle.
Electronic know your customer (eKYC) involves the use of internet or digital means of identity verification.[9] 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.[10]
In response to the digitalization of financial services, especially by neobanks and fintech platforms, the adoption of eKYC procedures has accelerated globally. eKYC systems often combine ID document verification, biometric authentication (e.g., facial recognition and liveness checks), and real-time risk monitoring to authenticate users. Some countries have implemented national guidelines or regulations around eKYC. For example, the Qatar Central Bank introduced a formal eKYC framework in 2023 aligned with its national fintech strategy, allowing digital onboarding of non-resident users with regulatory approval.[11]
eKYC is also being explored in conjunction with digital identity wallets and verifiable credentials as part of broader digital identity initiatives in jurisdictions like the European Union under the eIDAS framework.[12]
Different countries implement Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations through their respective financial intelligence units or regulatory authorities, aligning with international standards set by the Financial Action Task Force (FATF)
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