What is Know Your Customer (KYC)?
The short answer
Know Your Customer is the process of understanding who a customer is, why they are using a service and what risks the relationship creates. In a business relationship, that understanding can involve both a legal entity and the individuals acting for, owning or controlling it. Identity evidence is an input to the assessment, not a substitute for understanding the relationship.
Know Your Customer (KYC): why it matters
An organisation needs enough information to distinguish a legitimate customer from an impersonator and to recognise activity that does not fit the expected relationship. The evidence required for an individual differs from that for a company. A clear process separates identity checks, business verification and the assessment of behaviour so a passed check is not mistaken for an unrestricted approval.
How to assess it in practice
Start with the customer type and the service being requested. Establish identity using evidence appropriate to that customer, understand the purpose of the relationship and assess relevant risk factors. For a corporate customer, connect the business file to the people who have authority or control. Resolve inconsistencies before approval and update the understanding when material information changes.
Worked example
A payment provider is onboarding a corporate customer. It verifies the company’s registered identity and separately checks the authority of the person submitting the application. A genuine company record does not establish that the applicant is authorised to act for it. The file therefore records both the entity evidence and the authority evidence before a decision is made.
A finance team verifies a director's identity but still needs the company record and the reason for opening the business account.
Distinctions that matter
KYC describes knowing the customer; KYB provides the business-specific identity and ownership work. CDD turns that information into an assessment of a particular relationship. Explain these boundaries to readers before directing them to a business verification product.
Evidence and review output
Review these
- Entity and person identifiers
- Source and document scope
- Authority and unresolved discrepancies
The review should produce
A subject-level decision with each claim marked supported, contradicted or unresolved, plus the owner of any outstanding review.
Across this family
Start with the subject of each claim: legal entity, individual applicant or authorised actor. Keep identity evidence, representation and relationship approval as separate decisions. This prevents one technically successful lookup from being promoted into a broader conclusion it cannot support.
A note from practice
KYC must explain the customer and expected relationship, not just validate an identity document. For corporate customers, separate the legal entity from representatives and relevant owners so evidence is attached to the right subject.
Limits and common mistakes
Collecting a large number of documents can still leave the central questions unanswered. Documents need to be matched to the right customer and interpreted in context. Avoid treating a completed form as independent verification. The scope of legal duties depends on the jurisdiction and activity, so an operational explanation should not be turned into a universal compliance checklist.
Related questions
- What is Know Your Customer in banking?
- Why is it important to know your customer?
Frequently asked questions
Can KYC apply to corporate customers?
Are KYC and KYB the same?
Is a verified identity enough?
Continue learning
Related topics
- Business identity & verificationKnow Your Business (KYB)Know Your Business is the process of establishing the identity of a business, understanding who owns or controls it, and assessing whether a relationship presents unacceptable risk. A useful KYB record connects a legal entity to its registration evidence, ownership information and the decision made about it. Finding a company name is only the beginning: the record must belong to the business you intend to onboard.
- Due diligence methodsCustomer Due Diligence (CDD)Customer Due Diligence is the work of establishing a customer’s identity, understanding the relationship and assessing its risks. For a corporate customer, the file often combines company identity, ownership, representatives and an explanation of the intended activity. The aim is an evidence-supported decision that can be reviewed later, rather than a collection of unchecked documents.
- Beneficial ownership & controlUltimate Beneficial Owner (UBO)An ultimate beneficial owner is a natural person who ultimately owns or controls an entity. The immediate shareholder may be another company, so identifying a UBO can require following an ownership chain and examining control separately. A corporate owner should not be presented as the final answer to a question about the people behind a business.
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