KYC (Know Your Customer)

Know Your Customer is a mandatory compliance process where financial institutions and cryptocurrency businesses verify the identity, residency, and beneficial ownership of their clients before opening accounts or facilitating transactions. KYC procedures typically involve collecting government-issued identification documents, verifying current addresses, conducting biometric checks, and in some cases, performing video calls with customers. The process serves multiple purposes: preventing identity fraud, detecting politically exposed persons (PEPs), identifying sanctions violations, and creating an audit trail for regulatory oversight. In crypto, KYC has become standard practice at regulated exchanges and custodians, though it remains controversial within communities that value privacy and decentralization. Example: Kraken, a major US-regulated crypto exchange, requires users to submit government-issued ID, proof of address, and sometimes facial verification before they can trade cryptocurrency, storing this information in secure databases that comply with SOC 2 standards. Why it matters for compliance: KYC is foundational to preventing financial crime and money laundering in crypto. Without KYC, regulators have no way to connect on-chain addresses to real identities, making enforcement against illicit activity nearly impossible and subjecting platforms to significant legal risk.

Category: compliance

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