Know Your Customer (KYC) Explained

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Know Your Customer (KYC) Explained

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Know Your Customer (KYC) is a client onboarding procedure that helps businesses to verify their future customers and clients. KYC is essential to Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT).

KYC is specifically essential for financial institutions and banks. This is one of the main reasons why alternative financial products, like cryptocurrencies, raise regulatory concerns. The anonymous nature of cryptocurrencies, for instance, can be easily misused by criminals for fraudulent activities which makes KYC even more important.

Like other financial institutions, Digital Financial Exchange (DIFX) takes its KYC verification quite seriously while offering an easy solution to its customers to complete the process in a quick and seamless manner.

In this article, you will learn about KYC and its importance in the cryptocurrency space. We will also go through the KYC verification process on the DIFX exchange.

What is Know Your Customer (KYC)?

Know Your Customer or KYC for short is a verification process that businesses conduct when registering new customers and clients. This verification ensures that businesses are compliant with the Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT) laws and regulations.

During this process, customers need to provide their official identity documents as well as go through real-time face recognition tests. Official government-issued ID cards, driving licenses, passports, or any other official documents like the residency permit will be mostly accepted as your KYC document.

The business will then verify these documents to ensure that its customers are truly who they’re claiming to be. Sometimes you may need to provide supporting documents verifying your residential address during the KYC verification process for taxation purposes. This document can be a recent utility bill or a lease agreement.

KYC verification is usually not a one-time process and businesses conduct this on a regular basis to ensure that all the information and details of their clients are up-to-date, verified, and correct.

KYC and cryptocurrencies

One of the main features of cryptocurrencies is their anonymous nature. Although everyone can review and check the history of transactions on an open blockchain, these transactions are made from one wallet address to another which is nothing more than a sequence of numbers and letters.

Some cryptocurrencies took this anonymity one step further, making it even harder to track the history and details of transactions. Privacy coins obfuscate transaction details, a feature that is quite useful for keeping one’s financial records such as political and charity donations private.

Even though the anonymous factor of cryptocurrencies was created with financial privacy in mind, it has been greatly used by criminals and bad actors for illegal activities. Things have become even more complicated with privacy coins as they make tracking the illegal flow of funds even harder.

In 2018, the Financial Action Task Force (FATF), the global entity that addresses AML and CFT, published its recommendations on how the current measures should change for cryptocurrencies.

KYC is an important part of the FATF measures for cryptocurrencies. According to FATF standards, “Virtual asset service providers must know who their customers are, keep records, and report transactions when they suspect money laundering or terrorist financing.”

FATF encourages countries to apply these measures as they “ensure transparency of virtual asset transactions and keep funds with links to crime and terrorism out of the crypto sphere.”

How can you benefit from KYC?

Even though KYC looks like a procedure that would mostly help businesses to reduce their risks and stay compliant, it can be helpful for the end user as well.

KYC makes identity theft and fraud quite harder as criminals need to provide various documents and go through KYC procedures.

Additionally, KYC will increase trust within the ecosystem. Customers can trust the compliant platforms better with their funds while businesses can ensure the onboarding of legitimate customers.

KYC on the DIFX Exchange

Digital Financial Exchange (DIFX) takes its KYC procedure quite seriously while offering its customers a seamless and user-friendly solution to complete their KYC verification.

To complete your KYC verification on the DIFX exchange:

  1. Go to your DIFX account and select “Identity Verification”.
  2. Click on “Verify” and provide the required details on the following page.
  3. On the next page, you would need to enter details of your country/region, select the document type, and upload photos of the selected document.
  4. Finally, you would need to upload a clear photo of yourself and submit your documents.

The DIFX team will then check and verify your documents after which you will be able to enjoy a wide variety of services across multiple financial markets including cryptocurrency, stocks, commodities, and Forex.

Start your trading journey with DIFX by signing up now!