Know Your Customer (KYC) is the process by which a regulated firm establishes and verifies who its customer is and understands the intended nature and purpose of the business relationship. In the UK, KYC is the practical expression of the customer due diligence (CDD) measures required by Regulation 27 and Regulation 28 of the Money Laundering Regulations 2017. It requires firms to identify the customer and verify that identity on the basis of documents, data or information from a reliable and independent source.
Why KYC matters
Effective KYC is the firm’s first line of defence against money laundering, terrorist financing and sanctions evasion. Without it, a firm cannot meaningfully assess risk, screen against sanctions lists, or recognise suspicious activity. Failure to apply adequate KYC is a breach of the MLRs 2017 and a recurring theme in FCA enforcement, with firms fined for onboarding customers without verifying identity or beneficial ownership.
What KYC involves
At onboarding, KYC typically covers identifying the customer, verifying that identity, identifying any beneficial owners under Regulation 28, and understanding the purpose and intended nature of the relationship. For higher-risk situations, such as PEPs or customers in high-risk third countries, enhanced due diligence applies under Regulation 33. KYC is not a one-off: firms must keep customer information current through ongoing monitoring under Regulation 28(11).
Who it applies to
All staff involved in customer onboarding and relationship management at firms within the regulated sector under the MLRs 2017, supported by compliance and the MLRO.
Related terms
CDD, EDD and beneficial ownership.