Know-Your-Customer (KYC) is a process in the financial industry where customers are verified and their risk and financial profiles determined.

‍

With KYC standards, companies comply with the Money Laundering and Terrorist Financing Prevention Act (WWFT). Indeed, a good KYC policy ensures that people cannot disguise an illegal source of income as legal activities. The KYC is mandatory for every financial service provider in the Netherlands. De Nederlandsche Bank checks whether financial institutions carry out the controls properly.

‍

What does KYC consist of

A customer's profile is determined on the basis of various factors.

1. Identity check First, a customer's identity is verified. This is often done using an ID and a photo or scan to verify that the person on the ID is the same as in the photo. In the event of a suspicious transaction, it is thus possible to find the person responsible for the transaction.
2. Origin of funds Customers are asked about the amount of their income and how they earn it.

‍

Based on this information, a profile is outlined and suspicious transactions can be highlighted. For example, if a customer regularly deposits 2000 euros while the customer has indicated that they earn 30,000 euros per year, this is remarkable. This may be a reason to ask the customer for clarification.

‍

An important part of crypto is decentrality. A KYC control clashes with this decentralized aspect. However, identification only takes place at registered crypto platforms such as brokers and exchanges where cryptocurrencies can be exchanged for fiat currencies such as dollars and euros. In many cases of fraud and hacks, an attacker wants to exchange crypto to dollars or euros. If crypto platforms comply with the KYC principle, it is a lot harder for hackers to cash out their loot. Decentralized platforms often have no KYC. Here, it is often not possible to trade fiat currencies either.