What Is KYC in Banking?

Explanation of the Know Your Customer Protocol and how its used in finance stands for Know Your Customer, and it’s the legal requirement for financial institutions to verify their clients’ identities during the account opening process and periodically over time. The purpose is to prevent money laundering and terrorist financing by ensuring that the right people are using the financial services they provide. The same principle applies to businesses that want to use banks’ services such as fintech companies and cryptocurrency exchanges.

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During the KYC procedure, banks request documents to prove a client’s identity. They also verify a person’s address and their connection to other people or entities, as well as analyze their risk level for money laundering and terrorism funding risks. These checks can be as simple as a simple ID verification or as complex as a full-scale due diligence, known as enhanced due diligence (EDD). EDD is used for higher-risk clients, such as politically exposed persons and high-value transactions.

As KYC verification becomes increasingly complicated, it’s crucial to have the right tools in place. By implementing a streamlined ID verification workflow, banks can reduce manual processes and increase compliance efficiency.

Keeping up with the latest technology is key to improving KYC processes. By implementing AI and machine learning, it’s possible to reduce the number of manually verified documents and streamline the process so that it’s faster and more accurate. That way, financial institutions can better identify suspicious activities and keep their customers’ data safe.