Know your customer

Spec sheet // Glossary // KYCRev 2026.10
Glossary / K / Know your customer
Glossary · KYC and identity

Know your customer

KYCAlso called customer due diligence, client due diligence

Definition

Know your customer is the process a regulated firm uses to identify and verify its customers, understand what they will use the account for and assess their money laundering risk. It applies at onboarding and throughout the relationship. In law it is usually called customer due diligence, and it sits at the centre of every AML regime.

IDENTIFYVERIFYUNDERSTAND PURPOSERATE RISK
Fig. 1 · Know your customer
FATF Recommendations · Money Laundering Regulations 2017 · CDD Rule
Key rulesFATF Recommendations · Money Laundering Regulations 2017 · CDD Rule · AMLR
Applies toBanks, insurers, payment firms, cryptoasset firms and other relevant persons
RegionsGlobal · UK · EU · US
01

How it works

At onboarding a firm collects a customer's identity details and verifies them against documents, electronic data or digital identity checks. For companies it also identifies directors and beneficial owners. The firm records the purpose of the relationship, screens against sanctions and PEP lists and assigns a risk rating. Higher-risk customers get enhanced due diligence, such as source of wealth checks.

KYC does not stop after the account opens. Firms review files periodically or when events trigger a refresh, and compare activity with what the customer said they would do. Poor KYC is among the most common findings in supervisory enforcement, and many firms now use automated document checks and continuous data feeds to cut onboarding times.

Step 1IdentifyCollect name, date of birth, address or company details.
Step 2VerifyCheck identity against reliable, independent documents or data.
Step 3Understand purposeRecord the intended nature and purpose of the relationship.
Step 4Rate riskScreen lists and assign a customer risk rating.
Step 5MonitorKeep information up to date and review activity over time.
02

The rules

Global · 16 February 2012, regularly updatedFATF RecommendationsInternational Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation

Recommendation 10 requires identification and verification of customers and beneficial owners, understanding of the relationship's purpose and ongoing due diligence.

Countries, which apply them to regulated firms through national law
UK · 26 June 2017Money Laundering Regulations 2017The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692)

Regulation 28 requires firms to identify and verify customers and beneficial owners, assess the relationship's purpose and conduct ongoing monitoring.

Banks, insurers, payment firms, cryptoasset firms and other relevant persons
US · 11 May 2018CDD RuleFinCEN Customer Due Diligence Requirements for Financial Institutions, 31 CFR 1010.230

Requires covered institutions to identify and verify beneficial owners of legal entity customers and maintain risk-based ongoing customer due diligence.

Banks, broker-dealers, mutual funds, futures commission merchants and introducing brokers
EU · Applies from 10 July 2027AMLRRegulation (EU) 2024/1624 on the prevention of the use of the financial system for money laundering or terrorist financing

Sets directly applicable EU customer due diligence measures, including identification, verification, purpose of relationship and ongoing monitoring, replacing national rules.

Credit and financial institutions and other obliged entities in the EU
03

Common questions

Is KYC the same as customer due diligence?

In practice the terms overlap. KYC is the industry name for knowing who the customer is. Customer due diligence is the legal term in most AML laws and also covers beneficial owners, the purpose of the relationship and ongoing monitoring.

What documents are used for KYC?

For individuals, firms commonly use a passport, national identity card or driving licence, plus proof of address or electronic checks. For companies, they use registry extracts, constitutional documents and ownership charts, and verify directors and beneficial owners.

How often is KYC refreshed?

Rules require information to be kept up to date but rarely set fixed periods. Many firms review high-risk customers every year and lower-risk customers every three to five years, with event-driven reviews when circumstances change.

What is perpetual KYC?

Perpetual KYC refreshes customer files continuously using data feeds, such as company registry changes or adverse media, instead of waiting for a scheduled review. It aims to catch risk changes earlier and spread the review workload.