In plain English
What Know your customer means
KYC is the set of checks a broker, bank, or payment firm uses before and during a relationship to make sure the client is real, the account details make sense, and the activity matches what the firm expects. It typically includes identity verification, beneficial-ownership checks for entities, and periodic review. FATF’s Recommendation 10 frames this as customer due diligence.
Why it matters
KYC helps firms reduce fraud, sanctions, and money-laundering risk and is often required before trading or funding an account. It can affect onboarding time, document requests, and whether a firm will accept certain clients or payment methods. It is a compliance control, not a guarantee that a client is low risk.
Example
A trader opens an account with a broker using a passport, proof of address, and a bank statement. The broker compares the documents, checks the client’s name against screening lists, and classifies the account as low, medium, or high risk based on residence, entity type, and expected activity. If the client later changes country or funding source, the broker may ask for updated documents.
Quick answers
Common questions
Is KYC the same as anti-money laundering?+
No. KYC is one part of an AML control framework. AML is the broader system of policies, monitoring, reporting, and customer checks used to detect and prevent money laundering.
Does KYC remove all account risk?+
No. It reduces certain compliance and fraud risks, but it does not eliminate counterparty risk, market risk, or the risk that documents or information were falsified.
Sources