KYC (Know-Your-Customer).

Know-Your-Customer (KYC) is a process in the financial industry where customers are verified, and their risk and financial profiles are determined.

With KYC standards, companies comply with the Prevention of Money Laundering and Terrorist Financing Act (WWFT). This is because a good KYC policy ensures that people cannot disguise an illegal source of income as legal activities. KYC is mandatory in the Netherlands for every financial service provider. The Dutch Central Bank checks whether financial institutions are performing the checks properly.

What KYC consists of

A client's profile is determined based on several factors.

  1. Identity Verification First, a customer's identity is verified. This is often done using proof of identity and a photograph or scan to verify that the person on the proof of identity is the same as in the photograph. In the case of a suspicious transaction, this makes it possible to find the person responsible for the transaction.
  2. Origin of Funds Clients are asked about the amount of their income and how they earn it.

Using this data, a profile is sketched and suspicious transactions can be highlighted. For example, if a customer regularly deposits 2,000 euros while the customer has reported earning 30,000 euros per year, this is notable. This may be a reason to ask the customer for clarification.

An important part of crypto is decentrality. A KYC check clashes with this decentralized aspect. However, identification occurs only at registered crypto platforms such as brokers and exchanges where one can exchange crypto currency for fiat currencies such as dollars and euros. In many cases of fraud and hacks, an attacker wants to exchange crypto to dollars or euros. If crypto platforms comply with the KYC principle then it is a lot harder for hackers to cash out their loot. With decentralized platforms, there is often no KYC. Here it is also often not possible to trade fiat currency.