Know Your Customer (KYC)

November 21, 2023 - Around 2 mins mins to read

Know Your Customer (KYC): An Overview

Know Your Customer (KYC) is a crucial process undertaken by financial institutions to verify the identity of individuals using their platform. This process, also known as Know Your Client, plays a vital role in preventing money laundering and terrorism financing.

It is important to note that KYC is not limited to crypto exchanges but is a standard practice in the investment industry. It ensures that advisors have access to specific information about their clients, including their investment knowledge, risk tolerance, personal details, and financial position. In the crypto world, KYC often involves requesting photo ID such as a passport or driver’s license.

Credit companies, banks, and insurance agencies commonly conduct KYC to gather necessary information from customers. This helps prevent corruption and bribery, ensuring that customers are not involved in illegal activities.

The significance of KYC policies has grown in the global finance world as they play a crucial role in preventing illegal transactions. Financial institutions rely on these policies to conduct their business legally and protect themselves from potential risks.

The KYC process typically starts with electronic identity verification, where basic data and information about customers are collected. Details such as name, birthday, account number, and social security details are valuable in detecting fraudulent activity or financial crime. Organizations also check databases of individuals convicted for corruption and compare customer information against lists of sanctions or politically exposed persons.

Crypto exchanges are facing increasing pressure to implement KYC measures due to concerns about criminals using digital currencies to evade detection.

Buying Crypto Without KYC

While most crypto exchanges and services adhere to KYC and AML regulations, it is possible to find exchanges or peer-to-peer services that do not require KYC. These services operate in the decentralized cryptocurrency space and may not be overseen by any regulatory authority.

However, it is important to note that using a service without KYC regulation carries risks. The service may not have undergone proper scrutiny and could potentially be a bad actor.

On the other hand, some regulated crypto services may allow users to trade in smaller amounts of cryptocurrency before requiring KYC verification.

Glossary

Know Your Customer (KYC)