Know Your Customer (KYC) refers to regulatory processes that require financial institutions to collect identifying information about clients, verify who they are, and evaluate the risk they may pose for illicit financial activity.
Firms perform identity verification at account opening, screen against sanctions lists, and assess ongoing transaction patterns. Depending on risk, they apply standard due diligence (CDD) or enhanced due diligence (EDD), monitor for unusual activity, and keep records for regulatory review. KYC data supports anti-money laundering (AML) programs and helps authorities detect and deter financial crime.
Under laws such as the Bank Secrecy Act (BSA) in the United States, regulators require financial institutions to implement KYC controls, maintain documentation, and report suspicious activity through filings like suspicious activity reports (SARs).
Investors may encounter KYC processes when opening or maintaining accounts with banks or brokers, or when transferring funds between institutions. The objective is to ensure identity, legitimacy of funds, and compliance with the law.
A broker-dealer opens a new cash account and completes KYC by collecting name, date of birth, address, and government ID, then screens the client against regulatory lists.
Anti-Money Laundering (AML) · Customer Due Diligence (CDD) · Enhanced Due Diligence (EDD) · Suspicious Activity Report (SAR) · Bank Secrecy Act (BSA) · FinCEN