Know Your Customer — universally abbreviated as KYC — is the process of verifying the identity of clients before and during a business relationship. For regulated financial platforms, KYC is not optional. It is a legal requirement under anti-money laundering (AML) legislation, designed to prevent financial crime, fraud, and the misuse of financial infrastructure.
What It Is #
KYC encompasses the procedures a financial institution uses to verify that its clients are who they claim to be, that their business activities are legitimate, and that their funds come from lawful sources. It applies to every new user — whether a buyer setting up a supply chain finance program or a supplier joining an early payment platform.
KYC is not a one-time event. It is an ongoing process. Circumstances change — businesses are acquired, ownership structures shift, sanctions lists are updated — and financial platforms must maintain current, accurate records of who they are doing business with.
Failing KYC obligations exposes platforms to regulatory fines, reputational damage, and in severe cases, criminal liability. For users, robust KYC processes provide assurance that the platform they are using operates to high compliance standards.
The KYC Process #
Step 1: Identity Verification #
Individual users (directors, beneficial owners, authorised signatories) must provide government-issued identification — passport, national ID card, or driving licence — and proof of address. Document verification is performed digitally using AI-powered identity verification tools that detect forgeries and confirm document authenticity in real time.
Step 2: Business Verification #
The company itself must be verified. This involves confirming:
- Legal entity name and registration number
- Registered address and country of incorporation
- Company type (limited company, partnership, etc.)
- Regulatory status, if applicable
- Certificate of incorporation and Articles of Association
Step 3: Ultimate Beneficial Owner (UBO) Identification #
Any individual who ultimately owns or controls 25% or more of the company must be identified and verified. UBO disclosure is a cornerstone of AML regulation — it prevents criminals from hiding behind corporate structures.
Step 4: Sanctions and PEP Screening #
All individuals and entities are screened against:
- Sanctions lists — OFAC, EU, UN, and national sanctions lists
- PEP lists — Politically Exposed Persons who carry elevated risk due to their public roles
- Adverse media — news and public records indicating reputational risk or criminal associations
Step 5: Risk Classification #
Based on collected data, each client is assigned a risk rating — low, medium, or high. Risk rating determines the level of ongoing monitoring required:
- Low risk — annual review, automated monitoring
- Medium risk — semi-annual review, enhanced monitoring
- High risk — quarterly review, enhanced due diligence (EDD), potential escalation
Step 6: Ongoing Monitoring #
KYC does not end at onboarding. Transaction monitoring flags unusual activity — sudden volume spikes, payments to high-risk jurisdictions, patterns inconsistent with stated business activity. Periodic reviews refresh identity documents and ownership data.
KYC Documentation Requirements #
| Requirement | Individual | Business Entity |
|---|---|---|
| Identity verification | Passport or national ID | Certificate of incorporation |
| Address verification | Utility bill or bank statement | Registered office evidence |
| Ownership structure | N/A | UBO declaration |
| Financial information | Source of funds | Company financials |
| Regulatory status | N/A | Licences if applicable |
KYC and Customer Experience #
Rigorous KYC does not have to mean a slow onboarding experience. Digital KYC technology can complete verification in minutes rather than days:
- Automated document scanning — AI extracts and verifies data from ID documents instantly
- Liveness checks — biometric verification confirms the person presenting the ID is real and present
- Database cross-referencing — sanctions and PEP screening happens in real time
- Pre-filled data — open banking and company registry integrations pre-populate fields, reducing manual input
KYC vs. KYB #
| KYC (Know Your Customer) | KYB (Know Your Business) | |
|---|---|---|
| Focus | Individual identity verification | Business entity verification |
| Applies to | Directors, UBOs, signatories | Companies, partnerships, trusts |
| Key documents | Passport, proof of address | Certificate of incorporation, UBO declaration |
| Regulatory basis | AML Directive, FATF guidelines | Same — applied at entity level |
In practice, a full onboarding process involves both KYC (verifying individuals) and KYB (verifying the business) simultaneously.