Know Your Customer (KYC)

Know Your Customer regulations were established under FINRA Rule 2090. The purpose of KYC is to identify users so you can protect your business and customers from fraud and other financial crimes.

KYC regulations can vary by geography. However, KYC usually involves three main risk-based approaches to counteracting identity theft, money laundering, and financial fraud:

1. Implementing a customer identification program that collects and verifies identifying information, such as the individual’s name, date of birth, address, and identification number

2. Performing customer due diligence (CDD), which involves assessing customer risk by identifying customer identities, developing risk profiles, and continuously monitoring customers and transactions

3. Continuously monitoring customers over time and reporting suspicious activities to FinCEN and other relevant law enforcement agencies

There are several types of KYC, including:

• In-person: In-person KYC requires customers to present documents in person. Business representatives then manually verify these documents before allowing transactions to proceed.

• Paper-based: Paper-based KYC allows customers to submit documents via mail, which are then verified by businesses or trusted third parties. Details about customer relationships and transactions may be confirmed either online or over the phone.

• Digital: Digital KYC (sometimes called eKYC) processes shift the process of document submission and identity verification entirely online. Digital KYC platforms are usually able to verify users in a variety of ways, from documentary verifications such as government IDs and utility bills to selfies and database verifications from authoritative and issuing sources like the IRS.