Know your customer

AML/CFT legislation strengthens the prevention of and the fight against money laundering, its predicate offences and terrorist financing. It places legally binding obligations on sectors exposed to the risk of money laundering or the financing of terrorism to monitor their customers and transactions, and to report suspicious activities to governments. In the European Union these sectors are described as obliged entites, whereas in the United States the term covered institutions is used. Obliged entities are required to identify and assess the risks of money laundering and terrorist financing to which they are exposed. This business-wide risk assessment must be kept up-to-date. To manage these risks and comply with relevant AML legislation, obliged entities must have internal policies, procedures and controls in place. This includes applying Customer Due Diligence (CDD) measures and may require Extended Due Diligence (EDD) checks for certain categories of customers or transactions. The US Financial Crimes Enforcement Network (FinCEN), bureau of the US Department of Treasury, which is tasked with safeguarding the financial system from illicit activity, set out the core elements of CDD: • Customer identification and verification, • beneficial ownership identification and verification, • understanding the nature and purpose of customer relationships to develop a customer risk profile, and • ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating customer information. The main categories of Know-Your-Customer requirements of CDD, along with the need for additional checks for high risk clients have been set out in the United States in the Financial Industry Regulatory Authority (FINRA) Rule 2090,m which states that financial institutions must use reasonable diligence to identify and retain the identity of every customer and every person acting on behalf of those customers. In enforcing this rule, these organizations are expected to collect all information essential to knowing their customers. Information deemed necessary for enforcing know your customer requirements include the customer identification program (CIP), customer due diligence (CDD), and enhanced due diligence (EDD). To fulfill the requiremens set out by FinCEN in the 2016 CDD Rule, these checks should be supported by an on-going monitoring programme." The CDD rule requires that financial institutions identify and verify the identity of customers associated with open accounts. The CDD rule has four core requirements: is required when initial identity checks have been completed and high-risk factors have been identified for an individual or a business. These measures may be needed based upon factors such as the jurisdiction the customer is based in, the products they are using, or the nature of the customer. When these requirements have been met "enhanced" or additional due diligence above and beyond CDD is conducted which identifies the following information: • Source of wealth and funds check • Additional identity research • Risk identification and assessment • Nature of the client • Details of company background and activities • Director and shareholder information == Know your customer's customer ==

Know your customer's customer (KYCC) is a process that identifies a customer's customer activities and nature. This includes the identification of the customer's customers and assessing the risk levels associated with their activities. KYCC is a derivative of the standard KYC process that arose because of the growing risk of fraud obscured by second-tier business relationships (e.g. a customer's supplier). KYCC is not just an issue of legal compliance, you need to know the beneficiaries of your client in order to protect your business from various risks, which can include the infiltration of illegal funds into your organization. By extending the steps of know your customer to all of your client's various connections, proper due diligence can be exercised. == Know your business ==

Know your business (KYB) is an extension of KYC laws implemented to reduce money laundering. KYB is a set of practices to verify a business. It includes verification of registration credentials, location, the UBOs (ultimate beneficial owners) of that business, etc. Also, the business is screened against blacklists and grey lists to check if it was involved in any sort of criminal activity such as money laundering, terrorist financing, corruption, etc. KYB is significant in identifying fake business entities and shell companies. It is crucial for efficient KYC and AML compliance. According to the European Union's 5th AML directive, KYB is required for the following AML-regulated entities: • Credit institutions • Estate agents • External accountants • Financial institutions • Gambling services • Notaries • Services auditors • Tax advisors • Trusts • Investment firms Know your business (KYB) protocols typically include verifying business activities to determine whether they align with a company's risk tolerance. High-risk sectors may include gambling facilities, money services businesses, and adult entertainment industries, among others. KYB service providers such as LexisNexis and Enigma Technologies offer data and ongoing monitoring solutions that enable verification during both initial onboarding and throughout the entire business relationship lifecycle. == Electronic know your customer ==

Electronic know your customer (eKYC) involves the use of internet or digital means of identity verification. This may involve checking information provided is valid by using systems to validate ID and proof of address documents or by checking information against government databases such as the official passport database of a country. In response to the digitalization of financial services, especially by neobanks and fintech platforms, the adoption of eKYC procedures has accelerated globally. eKYC systems often combine ID document verification, biometric authentication (e.g., facial recognition and liveness checks), and real-time risk monitoring to authenticate users. Some countries have implemented national guidelines or regulations around eKYC. For example, the Qatar Central Bank introduced a formal eKYC framework in 2023 aligned with its national fintech strategy, allowing digital onboarding of non-resident users with regulatory approval. eKYC is also being explored in conjunction with digital identity wallets and verifiable credentials as part of broader digital identity initiatives in jurisdictions like the European Union under the eIDAS framework. ==Laws by country==

Different countries implement Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations through their respective financial intelligence units or regulatory authorities, aligning with international standards set by the Financial Action Task Force (FATF) • Australia: The Australian Transaction Reports and Analysis Centre (AUSTRAC), established in 1989, monitors financial transactions in Australia, and sets client identification requirements under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 • Canada: The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), established in 2000, is Canada's financial intelligence unit. It updated its regulations in June 2016 regarding acceptable methods to determine the identity of individual clients to ensure compliance with AML and KYC regulations. A pending lawsuit is active in Canada challenging the constitutionality of the new legislation. • European Union: The EU 4th AML directive came into effect in June 2016. Strengthening due-diligence, this legislation requires the beneficial owner of companies be held in a central register. • India: The Reserve Bank of India (RBI) first issued Know Your Customer (KYC) guidelines 2026 KYC social media for banks in 2002, establishing standardized procedures for customer identification and verification. As of March 2026, a parliamentary panel in India has recommended making Know Your Customer (KYC) verification mandatory for social media users to combat fake accounts, online fraud, and malicious content. This initiative aims to increase accountability for users on platforms like Instagram, Facebook, and YouTube • Italy: The Banca d'Italia exercises regulation power for the financial industry, in 2007 set KYC requirements for financial institutions that operate on Italian territory. • Japan: Enacted the Act on Identification of Customers by Financial Institutions 2003, requiring financial institutions to verify customer identity and maintain transaction records as part of the countries anti-money laundering framework. • Mexico: The "Federal Law for Prevention and Identification of Operations with Resources from Illicit Origin", promulgated in 2012 with president Felipe Calderon's administration and came into force in 2013 with the president Enrique Peña Nieto administration. • Namibia: Financial Intelligence Act, 2012 (Act No. 13 of 2012) published as Government Notice 299 in Gazette 5096 of 14 December 2012. It establishes customer identification, record keeping, and reporting obligations for financial institutions as part of the country's anti-money laundering and counter-terrorism financing regime. • New Zealand: Updated KYC laws were enacted in late 2009 and entered into force in 2010. KYC is mandatory for all registered banks and financial institutions (the latter has an extremely wide meaning). • South Korea: Act on Reporting and Use of Certain Financial Transaction Information establishes customer due-diligence, record keeping, and reporting requirements for financial institutions as part of South Korea's anti-money laundering framework. • United Arab Emirates:The key guidelines overseeing KYC in the UAE are the Government Pronouncement Regulation No. (20) of 2018 On Anti Money Laundering and Battling the Supporting of Psychological warfare and Funding of Unlawful Bureau Choice No. (10) of 2019 Concerning the Carrying out Guideline of Pronouncement Regulation No. • United Kingdom: The Money Laundering Regulations 2017 are the underlying rules that govern KYC in the UK. Many UK businesses use the guidance provided by the European Joint Money Laundering Steering Group along with the Financial Conduct Authority's 'Financial Crime: A guide for firms' as an aid to compliance. ==See also==