Know your Customer (KYC) is a process of identifying and verifying the identity of an entity’s potential customers, especially those that operate in the financial sector. The objective of KYC is to prevent money laundering, terrorist financing and other illicit activities that may put the reputation and security of the entity and its clients at risk.
KYC involves the collection and analysis of relevant information about clients, such as their personal data, their economic activity, their origin and destination of funds, their risk profile, etc. This information is compared with public or private databases that contain lists of people or entities sanctioned, investigated or linked to criminal activities. In addition, KYC involves monitoring and periodically updating customer information to detect possible changes or anomalies in their behavior.
KYC is regulated by various national and international regulations that establish the minimum obligations and standards that entities subject to KYC must comply with.
Some of these regulations are:
The Fourth European Directive on the Prevention of Money Laundering and the Financing of Terrorism (2015/849), which establishes the measures that financial institutions and other obliged entities must adopt to identify and verify their clients, as well as to apply diligence measures reinforced or simplified according to the level of risk.
Law 10/2010, of April 28th, on the prevention of money laundering and the financing of terrorism, which transposes the European directive into the Spanish legal system and creates the Executive Service of the Commission for the Prevention of Money Laundering and Offenses Monetary (SEPBLAC) as the supervisory and control body for KYC compliance
in Spain.
Regulation (EU) 910/2014 on electronic identification and trust services for electronic transactions in the internal market (eIDAS), which establishes a legal framework for electronic identification and trust services, such as electronic signatures, electronic seal, electronic registration or the certified electronic delivery, which facilitate the digital KYC process.
KYC has benefits for both entities and clients, among which the following can be highlighted:
KYC is an essential process for entities operating in the financial sector, as it allows them to identify and verify the identity of their clients, as well as prevent money laundering, terrorist financing and other illicit activities. KYC is regulated by various national and international regulations that establish the minimum obligations and standards that entities subject to KYC must comply with; KYC has benefits for both entities and clients, since it offers them greater security, trust, transparency and personalization.
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KYC is the acronym for Know your Customer.
All entities that operate in the financial sector, such as banks, insurance companies, investment funds, etc; as well as other entities that carry out activities that may be used for money laundering or terrorist financing, such as notaries, lawyers, casinos, jewelry stores, etc.
KYC offers greater security and confidence when operating with an entity that complies with anti-money laundering and terrorist financing standards, and that protects your personal and financial data. In addition, KYC facilitates access to more competitive and transparent financial products and services.
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