KYC - Know Your Customer

As the name suggests, KYC (Know Your Customer) is the anti-money laundering policy and procedure used to verify the identity of an individual or legal entity while accepting a new customer and verifying their source of funds. Regulated Financial Institutions like banks are required by law to verify several forms of identification to validate personhood before establishing a relationship with a client. Many banks utilize third-party KYC solutions to validate new customers' information by independently reviewing their identity documents. 

A KYC process may include:

• Checking identity documents

• Face verification

• Validation of supporting documents such as utility bills as proof of address

• Biometric verification

Brick-and-mortar businesses typically rely on physical documentation and face-to-face checks. In the case of online banks and Virtual Asset Service Providers (VASP), biometric identity verification systems are used to speed up and minimize friction during the customer onboarding experience. Some companies require a new user to hold a handwritten note with the date or other message unique to complete their virtual onboarding. More stringent KYC might include a video call to ensure the individual matches all their identity documents. Once all the details are verified, the screening process uses PEP, sanctioned lists, and scrubbing the internet for adverse media or other deviant behavior. Most users with a prominent crypto exchange account will be familiar with this onboarding process. The stringency of the verification process is a good indication of how seriously a business takes its compliance obligation. 

KYT - Know Your Transaction

(KYT) Know Your Transaction is monitoring the flow of assets to identify potentially suspicious activity proactively. For VASP companies, this usually occurs by using a third-party KYT Solution to continuously monitor the blockchain and scan data to identify suspicious transactions associated with illegal or high-risk activities. A sophisticated KYT Solution can analyze large data pools and use machine learning to detect patterns and Red-Flag anomalies to determine vulnerabilities successfully.