What is the primary purpose of KYC regulations?

The primary purpose of KYC (Know Your Customer) regulations is to establish customer identity and monitor risk. KYC is a critical component of a financial institution's anti-money laundering (AML) and counter-terrorism financing (CTF) efforts. By verifying the identities of customers and assessing their potential risks, businesses can better understand their customer base and detect suspicious activities early on.

Establishing customer identity involves collecting information such as a customer’s name, address, date of birth, and government identification details. This helps to create a clear picture of who the customer is, which is essential for preventing illicit activities. Monitoring risk involves ongoing assessments, especially for customers who may present a higher risk for fraudulent activities, thereby allowing institutions to take appropriate measures to mitigate those risks.

In essence, KYC plays a fundamental role in ensuring that businesses comply with legal requirements and protect themselves from financial crimes.