What is KYC in Banking?

Our guide breaks down the fundamentals of KYC in banking, and provides a clear actionable plan for getting started.

AuthorUcha Vekua, September 30th, 2021



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In today's global economy, it is important for banks, including other credit and financial institutions to actively monitor and prevent financial crimes. Know Your Customer (KYC) is an essential element of any anti-money laundering framework. It is the process of obtaining information about the customer, verifying their identity and determining the risks involved in establishing a business relationship with the customer concerned. This practice is designed to protect financial institutions against money laundering, corruption, fraud, and terrorist financing. The basic steps of this practice include establishing and verifying the customer identity, understanding their activities to validate sources of funds, and assessing money laundering risks associated with them. 

The KYC process is deemed a necessary step of establishing a customer relationship with a credit or financial institution. It can ensure that such institutions have detailed information about their clients. Advanced technologies have made it necessary to adapt the KYC process to online environments where the risk of online fraud is ever present.

In this article, we’ll try to tell you more about the KYC process in general and dive deep into this topic to discuss the importance of robust KYC, its role in compliance, key steps, and step-by-step guidance. We will also tell you about the implementation of this system into your platform to protect your business from money laundering and financial crimes.

Why is KYC important?

The primary reason for the KYC requirement is to prevent criminals from using banks and other financial services for their money laundering activities. It also helps banks understand their customers, to improve their services and manage risks based on that. 

The KYC process helps financial organizations avoid several penalties from regulators. These processes are vital for the banking industry because of the risks that financial fraud and money laundering can represent. That’s why organizations need to perform proper background screening procedures and mitigate fraudulent activities as much as possible. 

We can talk a lot about the necessity of using a KYC solution. Of greater importance though, is using one which utilises complex technologies, as this offers a big advantage in banking because it both protects your customers and combats fraud while working online. Thanks to this online process, scammers cannot easily access your platform, and your customers don’t have to worry about  their funds and personal data getting stolen. Also, it helps you to keep the complete information you need online and centralized, and it protects the customer information that is used for authentication purposes.

KYC compliance 

KYC compliance refers to the regulatory obligation for entities to develop customer identification procedures and verify them regularly according to the regulations. This obligation helps businesses fight fraud and avoid penalties from the supervisory authorities.

Steps can be different in every country, but there are common requirements that every country includes in their regulations. The standard conditions are:

  • Setting up proper identification and verification procedures
  • Verifying individuals through their official ID documents, data or information obtained from an independent and reliable source
  • Maintaining the risk-profile of customers
  • Taking additional AML compliance measures if needed

Anti-money laundering regulations are required to be implemented for a wide range of businesses from various industries. The most common entities obliged to abide by KYC requirements are banks, gambling providers, insurance companies, online payment solutions, crypto companies, real estate agencies, e-gaming platforms, legal professionals when providing certain services, and more. 

Anti-money laundering laws

Anti-money laundering (AML) is the set of laws, policies, and regulations that financial institutions have to follow which include monitoring of clients for the purpose of preventing money laundering. We can describe AML as an umbrella term for the range of regulatory processes that companies implement for regulatory purposes, which encompasses KYC. 

A proper application of the KYC process should translate, in the end, into verifying potential customers before they start using your services. These processes should be convenient for users, for example using on-device tools to detect biometrics is a solution causing little friction for the users and their experience. Also, it is always important to look into the laws of your specific country, for example, in most countries a bank only needs to know the address of their customer, but in some cases it is necessary to fully verify your customer’s home address - done by checking it against a document. 

It is most common to launder money to obscure funds generated by illegal activity. There are many use cases where individuals apply the most common methods to launder money successfully. The main industries for those activities are drug trafficking, embezzlement, arms trafficking, and more.

AML policy

A combination of measures used by financial institutions to ensure that sufficient measures are taken to avoid running into money laundering cases, are summarised into anti-money laundering policies. It is mandatory to implement such rules to run a business successfully. There are certain rules to follow to prepare proper AML policies. 

The authority for law enforcement is different in every country. In the United States, the main AML legal authority - the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury, is mandated by the Bank Secrecy Act. This allows FinCEN, with assistance from other branches of the Department of Treasury, to effectively coordinate, monitor, and enforce the relevant legislative provisions. In the UK, the main financial services regulator is the Financial Conduct Authority.

There is a standard way to prepare AML policies for a company. The first thing is to determine the AML risks relevant to your operations and product. After that, you can search for country-specific requirements that regulators have provided. The goal is to define money laundering and terrorist financing within the company in the light of the sector where you are operating. It is also necessary to have a compliance officer who can take this responsibility and make sure that employees are aware of this topic.

KYC measures

Financial institutions, banks, and other organizations ask their potential customers to go through the KYC measures specifically designed according to their needs to complete their onboarding procedure. Before setting up a system, business owners need to consult with lawyers and other internal, and external, stakeholders to make sure that they are collecting correct and sufficient KYC data and supporting documents that should correspond to the customer’s risk profile. The main steps for the digital KYC process are:

  • Information Collection - The first step for completing the KYC procedure is to collect personal information about the potential customer. In this case, they must fill out an online KYC form on the platform they wish to register. 
  • Supporting Document Upload - The second step in this procedure is to prove the authenticity of the previously obtained information. The system asks customers to upload the relevant documentation and show data, proving that the information is not fake and the customer is ready to use services legally. 
  • Verification of Information - After the documents have been uploaded, it is necessary to ensure that the document has not been tampered with in any manner. Digital tampering is a widespread practice, via applications like photoshop, which might even not be checked by authorities and may go unnoticed. This is why the final security layer is necessary for the digital KYC procedures to validate the document authenticity. Additionally, information may also be required to be verified against governmental registries and databases to ensure that it is verified against independent and reliable sources.

Where is Veriff in the KYC industry?

Veriff is making it easy for companies to connect with honest people. We build trust online and make the digital world safer with the tools we are creating daily. Our full-stack AML & KYC Compliance solution will help you fight financial crime effectively. It includes identity verification, checking PEP & sanctions databases, looking at adverse information & media, and ongoing monitoring. 

Developers can deploy Veriff’s end-to-end compliance technology with a single integration, backed by industry-leading support and account management. You can schedule a consultation time with our Identity Verification and KYC experts, and they will answer all of your questions in detail. 


What is KYC?

KYC refers to a process of establishing and verifying the identity of your customers to prevent money laundering, corruption, fraud, and terrorist financing. It is a crucial  element for fighting against financial crime online. 

What are KYC requirements?

A KYC procedure involves verification of the individual’s identity, address, and other details that can help prevent fraud and financial crime. It can be done in person, but taking into account the widespread presence of services online, it is more common and practical to do it using online identity verification tools. 

Why is KYC important?

It helps financial service providers prevent criminal activities and avoid penalties from regulators. These processes are important for the industry because of the risks that financial fraud and money laundering can represent. 

What is the difference between KYC and AML?

AML (Anti-money laundering) is an umbrella term for the range of regulatory processes companies are required to have in place to combat money laundering. KYC (Know your customer) is one of the components of AML, which refers to understanding your customers and the potential risks associated with them.

Ucha Vekua

Ucha Vekua

Content Creator

Ucha is a young Content Creator from Georgia - loves to tell stories about his international experiences and startup adventures. He has been part of the Veriff team since 2019, and aside from that, Ucha is actively working with multiple tech organizations to share their successful journey.

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