KYC

Definition

Know Your Client (KYC) is the regulatory and risk management process of confirming the identity of a client before establishing a business relationship or carrying out certain transactions. KYC ensures compliance with anti-money laundering (AML), counter-terrorist financing (CTF), and other financial regulations.

Why it matters

KYC is a cornerstone of financial crime prevention. It protects businesses from inadvertently facilitating criminal activity and helps maintain trust with regulators, clients and counterparties.

In the UK, KYC requirements are set out in the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 and apply to a wide range of regulated businesses, from banks and law firms to estate agents and high-value dealers.

How KYC works in the UK

1. Collection – Gather identifying information (e.g., passport, driving licence, proof of address).
2. Verification – Confirm authenticity via independent and reliable sources.
3. Risk assessment – Determine the client’s risk profile based on factors like jurisdiction, transaction type and industry.
4. Ongoing monitoring – Keep client information up to date and review transactions for suspicious activity.

Examples and use cases

• Law firms – Verifying the identity of new clients before accepting instructions.
• Financial services – Checking personal or corporate clients before opening accounts or processing transactions.
• Property transactions – Ensuring buyers and sellers are properly identified before contracts exchange.
• Luxury asset dealers – Verifying buyers of high-value goods to meet AML thresholds.

Mini-FAQ

Q: How is KYC different from CDD (Customer Due Diligence)?
A: KYC is often used as a general term for client identity checks, while CDD refers to the specific procedures and standards required under AML regulations.

Q: Is KYC always mandatory?
A: For regulated businesses in the UK, yes - before any regulated activity begins or certain thresholds are met. It is also mandatory in the context of high-value dealers and art-market participants.