Know Your Customer (KYC)

Know Your Customer (KYC) is a set of due-diligence procedures financial institutions must perform before and during a business relationship. At a minimum, KYC involves verifying the customer's identity through official documents (passport, driving licence), confirming address through utility bills or bank statements, and — for companies — identifying the beneficial owners. For higher-risk customers, Enhanced Due Diligence (EDD) requires a more detailed investigation into the source of funds and the nature of the business relationship.

KYC processes are mandated by anti-money laundering regulations worldwide. In the UK, the Money Laundering Regulations 2017 specify when and how CDD must be applied. In the US, the Bank Secrecy Act and FinCEN's Customer Due Diligence Rule govern these requirements. Non-compliance can result in regulatory fines; major banks have faced multi-billion dollar penalties for systematic KYC failures.

For fraud victims, weak KYC at receiving banks is a systemic enabler of mule accounts and scam infrastructure. If a bank opens an account for a fraudster with inadequate identity verification, it may bear greater moral and, in some cases, legal responsibility for fraud losses channelled through that account. This is part of the rationale for the PSR's APP fraud liability split between sending and receiving banks.