Definition
KYC verification is an authentication process that businesses, especially financial services, use to verify the identity of their clients. It is a legal requirement that prevents financial fraud, identity theft, terrorist financing, money laundering, and other illegal activities.
The process varies by country, yet the common goal is to ensure that businesses know their clients, reducing the risk of involvement in illegal activities.
History of KYC Verification
KYC was established in the US under the Banking Secrecy Act in 1970 to prevent banks from being used for money laundering by criminals. KYC guidelines solidified in the eighties and nineties due to the increase in money laundering operations related to drug trafficking and organized crime.
This led to an emphasis on customer identification, record keeping, and detecting suspicious transactions.
The G7 countries created the Financial Action Task Force (FATF) in 1989 to establish international standards to combat money laundering. Also, in 2001, after the September 11 attacks, The USA PATRIOT Act was enacted, significantly expanding the scope of anti-money laundering laws and regulations in the US.
Gradually, other countries worldwide integrated KYC principles into their legislation. Now, its complexity has evolved to combat advanced financial crimes.
What is eKYC
eKYC, or Electronic Know Your Customer, is a digital process of authenticating user identity when they sign up for a service. Unlike traditional KYC, which requires physical document verification, eKYC relies on digital channels and biometric technologies.
Who Uses eKYC Verification?
- Banking and financial institutions use KYC to verify customer identity for secure account access and regulatory compliance.
- Cryptocurrency and Blockchain platforms employ KYC to ensure compliance and security.
- Telecommunication companies use KYC to verify SIM card users to meet government regulations and prevent fraud.
- E-commerce and online marketplaces use KYC to confirm the identities of sellers and buyers for trust and security.
KYC Verification Benefits
- Reduce fraud: Verifying identities helps to prevent identity theft, money laundering, and unauthorized account access.
- Regulatory compliance: KYC helps organizations and businesses to comply with regulatory requirements like AML and CFT.