KYC is the first step in anti-money laundering (AML) due diligence in the financial industry. Here’s what you should know about KYC meaning, processes, requirements, and even more.
The term “know your customer” is becoming more popular within the financial industry, yet most people aren’t really sure what it means or why it’s so important.
Above all, consumers know their bank and its services well enough to trust it with their money.
For businesses, however, knowing your customer is an effective way to identify who you are interacting with and your needs. Your customer might be a new client looking to open an account or an existing one trying to switch banks.
Let’s explore what you should know about this term.
Know Your Customer (KYC) is the verification process cryptocurrency companies take during onboarding to verify customers’ identities and avoid any scammy activities.
When a financial institution (FI) registers a new customer, a KYC procedure is immediately performed to identify and verify the identity of the customer.
The reason “know your customer” is so important in today’s financial industry is that crypto assets are almost entirely anonymous. This makes it a prime target for illegal activity, including money laundering, fraud, and tax evasion
Every financial institution and blockchain company engaging in cryptocurrency-related activities must comply with anti-money laundering (AML) and know-your-customer (KYC) regulations.
However, it’s important to note that not all cryptocurrency projects are required to comply with KYC/AML regulations.
For example, companies that hold tokens on a decentralized platform are not required to collect KYC/AML information. This means that investors who fund projects on decentralized platforms like Etherscan are not required to provide any information about themselves.
So leading companies in the crypto industry like Privateum take this part seriously and does highlight the confidentiality and security of their customers.
Related Article: Why You Should Be Holding Not Trading Crypto
The KYC verification process involves both the project and the investors knowing certain details about each other.
In the case of crypto projects, investors should transfer funds to an account owned by the project.
To hold this money, the project must verify the identity of the investor. This usually involves the investor providing identifying information such as name, address, and proof of ownership such as a government-issued ID.
Investors may also choose to submit additional information such as their income and source of funds. Projects will use this information to stay compliant and prevent scam campaigns.
And investors will be able to tell if a campaign is trustworthy or not.
Know Your Customer (KYC) regulations are designed to help businesses track and prevent money laundering and tax evasion. The most common KYC requirement is proof of identity.
Other requirements and requirements may vary by country and may include proof of address, source of funds, and information about the person holding the funds
Today, retail investors and traders also put themselves at risk of losing large amounts of capital due to poor or no KYC/AML practices.
And because cryptocurrency is unregulated, it is also difficult to track transactions. This means it’s easy for scammers to create false identities to steal funds or cash out fraudulent ICO campaigns.
So that’s why KYC/AML compliance is essential for any organization engaging in cryptocurrency-related activities.
These regulations are designed to keep money out of the hands of criminals and help authorities track down tax evaders.
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