In banking and financial operations, KYC is mandatory. It practically means “Know Your Customer” and stands out as being mandatory for verifying and identifying customers. In the beginning, KYC laws appeared in 2001, right after the 9/11 terrorist attack. Its goal was to offer legal means to highlight or deter terrorist behavior. Nowadays, all transparent and legal financial products need KYC verification.
The KYC check aims to prevent money laundering, identity theft, financial fraud and terrorist financing. Checks give the company information about customers so that risks can be accordingly managed.
AML vs KYC
Companies that use KYC also usually use AML. AML is broader and means “anti-money laundering”. It refers to specific regulations, laws and policies that combat fraudulent ways to generate income. Even if the scope is different, AML and KYC are always connected.
As an example, when there is a digital exchange that uses KYC procedures, it is proof that the business is or tries to be legitimate. When the project follows KYC and AML regulations, it can start highly successful collaborations with companies in the banking sector. Most digital exchanges struggle and cannot get bank accounts. They simply cannot simplify their global financial operations because they cannot work with banks. A bank also needs to protect itself. AML and KYC are connected simply because they help increase transparency when it comes to financial operations.
Is KYC Important?
KYC is manual. The process includes some physical verifications of scanned documents. The goal is always to make sure that the information offered by customers and the customer himself/herself is actually real.
With digital exchanges, KYC is more important. This is because such an exchange usually works with people from all around the world and from different walks of life. Basically, KYC processes are the same for banks and digital exchanges. These institutions need:
- POI – proof of identity
- POA – proof of address
- Extra information – based on unique operations, some extra information may be needed
A cryptocurrency exchange can accept or request various ID types. They can ask customers to sign forms and can include their own unique procedures. However, the goal is always the same: verify the identity of the customer.
When You Do Not Provide The Needed Documents
When you refuse to offer the documents that are requested, it becomes impossible to trade, sell or buy cryptocurrencies with an exchange. With a bank, you are not allowed to open an account. Whenever your goal is to do things in a legal way, you have to go through KYC checks.
Fortunately, it is not at all difficult to offer all the documents that you need to be verified. Usually, proof of identity is possible with the following documents:
- Driving license
- Voter’s card
You also have to prove your address. In this case, you are usually required to submit one of the following:
- Bank account statement (needs to include a signature)
- Utility bill – like a gas bill, electricity bill or telephone bill
- Employer letter
Based on the exact scope of the operations of a financial institution, other documents might be requested for KYC purposes.