Know your customer

Know your customer (KYC) comprises procedures financial institutions use to verify customer identities, understand their activities, and assess risks associated with business relationships.

Customer identification program: A financial institution’s procedures for collecting and verifying identifying information when opening accounts. It establishes the identity-verification stage of KYC.
Bank account opening: The process by which a bank establishes an account relationship with a customer. Banks commonly perform initial KYC checks before opening an account.
Bank Secrecy Act: A 1970 United States law requiring financial institutions to keep records and report certain financial activity. It laid an early statutory foundation for customer records and financial-crime controls in the United States.
Anti-money laundering: Laws, regulations, and controls designed to prevent criminals from disguising proceeds of crime as legitimate funds. KYC is one part of the broader systems used to prevent money laundering.
Customer due diligence: The assessment of a customer’s identity, activities, and financial-crime risk before and during a business relationship. It broadens identity checks into an assessment of the relationship’s risks.
Politically exposed person: A person entrusted with a prominent public function, whose position can create heightened corruption risks. PEP status can call for additional KYC scrutiny and approval.
Financial Action Task Force: An intergovernmental body that develops standards to combat money laundering, terrorist financing, and proliferation financing. Its recommendations helped shape international customer-due-diligence standards.
Know your business: Due diligence used to understand and assess the risks of a business customer or commercial counterparty. It applies customer-understanding principles to business entities and their operations.
Enhanced due diligence: Additional scrutiny and controls applied to customers presenting higher financial-crime risks. Higher-risk findings can trigger deeper checks than standard KYC requires.
Sanctions screening: The checking of customers, counterparties, and transactions against applicable sanctions lists. Institutions often screen KYC records against sanctions lists to avoid prohibited relationships.

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