What is KYC (Know Your Customer)?

What is KYC (Know Your Customer)?

KYC stands for Know Your Customer. It is the legal requirement to identify your customers and to check that who they are, and what they do, is legitimate. KYC laws differ between countries, but the principle is the same everywhere: gather enough reliable information to properly identify a person or company, and to spot activity that does not add up.

As corruption, terrorist financing and money laundering have become more prominent concerns, KYC has evolved from a simple form-filling exercise into a core tool for fighting illegal transactions in international finance. In the UK the requirement sits within the Money Laundering Regulations 2017; in the EU it follows the AML directives and, from 2027, the new EU AML Regulation.

A compliance analyst verifying a customer's identity documents on screen
A compliance analyst verifying a customer’s identity documents on screen

What a KYC process involves

A proper KYC check is more than storing a copy of a passport. It usually includes:

  • Identity verification: confirming the authenticity of identity documents, checking the expiry date, and screening against stolen or revoked document lists.
  • Registration and tax numbers: checking a company number at Companies House, a VAT number in the VIES system, or equivalent registers, and matching them against the details the customer gave.
  • Legal status: confirming the entity is active and not in liquidation, administration or dissolved.
  • Beneficial ownership: identifying the ultimate beneficial owner of a legal entity.
  • PEP status: checking whether the customer, or the beneficial owner, is a politically exposed person.
  • Sanctions screening: checking both individuals and entities against applicable sanctions lists.
Official registers and documents being cross-checked
Official registers and documents being cross-checked

KYC, CDD and EDD

KYC is the broad discipline. Customer due diligence (CDD) is the process of applying it in practice, and enhanced due diligence (EDD) is the higher level of scrutiny applied to higher-risk customers, including PEPs and customers in high-risk jurisdictions. In the UK, the FCA expects firms to be able to demonstrate that they know their customers and have assessed the risk they present.

Doing it efficiently

Each of these checks can be performed manually, but at volume that becomes slow and error prone. Many of the steps can be automated through a platform. Hyperflow provides identity, company, PEP and sanctions checks through an API, so the same process runs consistently for every customer.

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