KYC is the abbreviation for "Know Your Customer." It describes the process through which companies verify the identity of their customers to prevent money laundering. Particularly for financial institutions, insurance companies, or, for example, crypto exchanges, this is a mandatory examination for new customers.
In order to combat money laundering, criminal activities, economic crime and terrorism, international minimum standards for the identification of new customers have been established. These rules are designed to prevent, for example, the movement of funds back and forth through shell companies. Before opening an account for a new customer, KYC must verify who the customer is, what the business model is for corporate customers, and where the financial flows originate.
Coordination of KYC compliance
In Switzerland, KYC is required by law. The legal basis is the Anti-Money Laundering Act (AMLA), which is enforced by the Swiss Financial Market Supervisory Authority (FINMA), which is responsible for monitoring and enforcing compliance with the AMLA. Depending on the transaction volume and the status of the customer (business, private, politically exposed person, also known as PEP), KYC inquiries typically include the following points:
- Verification of identity card or passport
- Questioning the customer about their financial situation
- Verification of the source of funds for both fiat and crypto transactions
KYC requirements are not only relevant at the national level, but also have an international dimension. Due to the global nature of financial markets, companies need to ensure that they comply with international standards for KYC to minimize potential risks and ensure smooth cross-border financial transactions. Overall, KYC has become an indispensable part of compliance practices for companies in the financial and insurance industries and is designed to help maintain the security and stability of the global economic system.
