What Is KYC (Know Your Customer)?
Also known as: Know Your Customer, Customer Identification, Identity Verification, Customer Due Diligence
In short
KYC (Know Your Customer) is the legally required identity verification process that financial institutions and cryptocurrency exchanges use to confirm customers' identities, determine their risk profile and prevent illegal activity.
In the KYC process, the user is usually asked for information such as full name, date of birth, identity document, address and live face verification. The institution verifies this information and classifies the customer by risk level. For high-value or unusual transactions, additional steps such as documenting the source of funds (enhanced due diligence) may be required.
KYC is part of a broader framework aimed at preventing money laundering and the financing of terrorism (AML). International standards are set by the Financial Action Task Force (FATF); the FATF's “travel rule” requires sender and recipient information to be shared between service providers in cryptocurrency transfers. In Turkey, crypto asset service providers are obliged under MASAK legislation and must identify their customers.
KYC makes it easier for platforms to operate legally and to fight fraud; on the other hand, the centralized collection of personal data brings the risk of data breaches and privacy concerns. Most decentralized exchanges do not apply KYC, but identity verification is almost always required at fiat on-ramps and off-ramps. Privacy-preserving identity verification methods using technologies such as zero-knowledge proofs are also being developed.
Last updated: · This content is for information purposes only and is not investment advice.