KYC refers to a process that banks and other financial institutions use to gather identifying data and contact information from current and potential customers. Its purpose is to prevent fraud, money laundering, and other illicit activity, as well as the misuse of financial accounts.
Some identifying documents required by KYC processes include:
Driver’s License / Government-issued photo ID
Social security number
Voter ID Card
Address verification is also necessary. Applicants may submit different documentary proof, depending on the bank’s practices. Some examples include a utility bill, account statement from a different bank or credit card issuer or a lease agreement.
After providing a customer with an account, banks are required to perform periodic record updates. This means they continue to “recertify” their customers with intermittent requests for KYC information throughout their banking relationship. They also assign a risk level to their customers and monitor customer transactions to ensure they match expected behavior.
KYC practices aren’t limited to banking institutions. The financial investment industry uses KYC processes in compliance with the Financial Industry Regulatory Authority (FINRA) KYC Rule 2090. But rather than an AML effort, these KYC practices help investment companies better understand client needs.
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