Know Your Customer (KYC) is the process financial institutions and regulated businesses use to verify the identity of their customers and assess the risks of illegal activity. KYC is a cornerstone of global AML and counter-terrorist financing (CTF) regimes, designed to prevent criminals from hiding behind anonymous accounts or shell companies.
While Facctum does not provide KYC onboarding services directly, our solutions support the surrounding compliance ecosystem that ensures KYC obligations are effective, including Customer Screening, Transaction Monitoring, and Watchlist Management.
KYC
KYC is a regulatory requirement mandating firms to collect and verify information about their customers.
The scope typically includes:
Identity verification: Checking government-issued documents or reliable data sources.
Customer due diligence (CDD): Assessing the nature and purpose of the business relationship.
Ongoing monitoring: Ensuring transactions align with the customer’s profile over time.
Authorities such as the Financial Action Task Force (FATF) recognise KYC as fundamental to combating financial crime.
Why KYC Matters For AML Compliance
KYC protects the financial system by making it harder for criminals to launder illicit funds, finance terrorism, or engage in fraud. Without robust KYC measures, regulated firms risk:
Allowing anonymous accounts that obscure beneficial ownership.
Becoming conduits for money laundering or sanctions evasion.
Failing to identify politically exposed persons (PEPs) or high-risk customers.
The European Banking Authority (EBA) has issued guidelines to ensure consistent application of KYC, particularly under the EU’s Anti-Money Laundering Directives (AMLDs).
Core Elements Of KYC Programs
Customer Identification Program (CIP)
Requires firms to collect and verify customer details such as full name, date of birth, address, and identification number.
Customer Due Diligence (CDD)
Involves verifying identity and understanding the nature of the business relationship. Low-risk customers may be subject to Simplified Due Diligence, while high-risk customers undergo Enhanced Due Diligence.
Ongoing Monitoring
Ensures that customer activity aligns with the expected risk profile. This is often supported by automated Transaction Monitoring systems.
Challenges In KYC Compliance
KYC presents several operational challenges:
Data collection and accuracy: Verifying information across multiple jurisdictions and formats.
Customer friction: Balancing compliance with a smooth user experience.
Evolving risks: Adapting KYC frameworks for new technologies such as digital wallets and crypto exchanges.
Integration with AML frameworks: KYC data must feed into screening, monitoring, and reporting systems.
The Future Of KYC
The next generation of KYC is moving toward digital-first and risk-based models:
eKYC and digital ID: Leveraging government-backed identity schemes.
Continuous monitoring: Moving from static checks to ongoing risk assessment.
Cross-border harmonisation: Regulators such as the European Commission are pushing for greater alignment of KYC and AML requirements across Member States.
Technology adoption: Integration with AI, machine learning, and advanced analytics to detect anomalies faster.
