What is KYC (Know Your Customer)?
KYC (Know Your Customer) is the process of verifying a customer's identity before and during a business relationship. Required by financial regulators worldwide, KYC involves identity verification, risk assessment, and ongoing monitoring to prevent fraud, money laundering, and terrorist financing.
KYC is closely related to KYB (Know Your Business), which applies the same verification principles to corporate entities, and AML (Anti-Money Laundering), the broader regulatory framework that mandates KYC procedures.
KYC requirements and process
KYC regulations — enforced by bodies like FATF (Financial Action Task Force) and FinCEN (Financial Crimes Enforcement Network) — require a tiered approach to customer verification:
- Customer Identification Program (CIP) — The first step: collecting and verifying identity documents (government ID, passport, proof of address). CIP establishes that the customer is who they claim to be.
- Customer Due Diligence (CDD) — Assessing the customer's risk level based on their profile, business purpose, and expected transaction patterns. CDD determines the appropriate level of ongoing monitoring.
- Enhanced Due Diligence (EDD) — Additional investigation required for high-risk customers, including Politically Exposed Persons (PEPs), customers in high-risk jurisdictions, and those with complex ownership structures. EDD involves deeper source-of-funds analysis and more frequent monitoring.
- Ongoing monitoring — KYC is not a one-time event. Regulations require continuous monitoring of transactions, periodic re-verification, and screening against updated sanctions lists and adverse media.
Why KYC is changing
Traditional KYC relies on manual verification — analysts reviewing documents, checking databases, and writing risk assessments. This approach has significant limitations:
- Slow onboarding — Manual KYC takes 3–4 days per case, creating friction that drives customers to competitors with faster onboarding.
- High cost — At $25–40 per case, manual KYC costs scale linearly with customer volume. Banks spend $500M–$1B annually on compliance.
- Point-in-time blindness — Manual checks verify identity at onboarding but miss changes afterward. A customer sanctioned six months post-approval goes undetected until the next periodic review.
- New fraud vectors — Synthetic identities and AI-generated documents are increasingly sophisticated, defeating traditional document-based verification.
How Salmon approaches KYC
Salmon screens against sanctions lists, PEP registries, and adverse media in seconds — not days. Continuous post-approval monitoring catches status changes automatically. Full audit trail with source attribution on every verification, so compliance teams can demonstrate due diligence to regulators without manual documentation.
Related concepts
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