What Is KYC and Why You Need to Know About It

KYC is the abbreviation in English for “Know Your Customer” (Know Your Customer). But what does it mean in practice? It is a mandatory procedure that financial institutions, banks, and cryptocurrency platforms adopt to verify the identity and collect information from their users. The goal is simple: to combat fraud, illicit activities, and money laundering.

The Legal Origin of KYC

The need for KYC verification did not come out of nowhere. In the US, for example, the Patriot Act (Patriot Act) of 2001 made it mandatory for banks to implement customer identification procedures. But this concern is even older: in 1989, the FATF was created - known in Brazil as the International Financial Action Task Force (FATF) - specifically to tackle money laundering on a global scale.

The FATF establishes international standards and recommendations through anti-money laundering practices, known as AML (Anti-Money Laundering). Each member country adopts its own laws and regulations to follow these guidelines. Together, KYC and AML function as an integrated financial protection system.

How KYC Verification Works

The KYC process begins even before you open an account. Institutions need to confirm your declared identity through specific documentation. Since there are no unique legal standards, each bank or platform may request different documents. The most common include:

• Government-issued photo identity document (such as driver's license)
• Passport
• Social security number or equivalent
• PAN Card
• Voter ID

In addition to identity, proof of address is essential. You can present a utility bill, bank statement, rental agreement, or another document that proves your residence.

After opening the account, the relationship does not end there. Banks continue to periodically update customer records, requesting updated information. They also monitor transactions to ensure that behavior aligns with the expected standard, assigning risk levels to each user.

KYC Beyond the Banking System

The investment industry also adopts similar practices. In the US, FINRA (Financial Industry Regulatory Authority) implements the KYC Rule 2090. Here, however, the focus is not only on combating money laundering but also on helping investment firms better understand the needs and profile of each client.

In the cryptocurrency industry, KYC follows a different standard. Many platforms allow you to create an account and start using it before completing verification. However, these unverified accounts often have functional limitations - you may face restrictions on withdrawals, transaction volumes, or access to certain services.

The Benefits (Even If Complex)

Yes, KYC makes the account opening process slower and more complex. Yes, you need to keep your documents and be available for verifications. But the benefits are real: significant reduction of fraud and criminal activities in the financial system.

For the cryptocurrency sector specifically, compliance with KYC has a direct impact on reputation. The less the industry is associated with illicit activities, the more trust it inspires in users and regulators.

An Important Disclaimer

If you are about to do KYC on a platform, check first if the company implements strong data security standards. Do not provide sensitive information without ensuring that your data is well protected. Compliance is necessary, but your privacy also deserves attention.