what is know your client kyc 
know your client kyc is a standard in the investment industry that ensures advisors can verify a client s identity and know their client s investment knowledge and financial profile three components of kyc include the customer identification program cip imposed under the usa patriot act in 2001 customer due diligence cdd and ongoing monitoring or enhanced due diligence edd of a customer s account once it is established understanding know your client kyc the know your client kyc rule is an ethical requirement for those in the securities industry dealing with customers during the opening and ongoing maintenance of accounts it is implemented at the onset of the customer broker relationship to establish the essential personal profile of each customer before any financial recommendations are made the customer is also made aware of the need to comply with all the laws regulations and rules of the securities industry kyc requirementscip requires that financial firms obtain four pieces of identifying information about a client including name date of birth address and identification number cdd is a process in which all of a customer s credentials are collected to verify their identity and evaluate their risk profile for suspicious account activity edd is used for customers that are at a higher risk of infiltration terrorism financing or money laundering and additional information collection is often necessary kyc compliancetwo rules governing kyc include financial industry regulatory authority finra rule 2090 know your customer and finra rule 2111 suitability finra rule 2090 requires every broker dealer to use reasonable diligence when opening and maintaining client accounts and to know and keep records on the profile of each customer as well as identify each person who has the authority to act on the customer s behalf finra rule 2111 notes that a broker dealer must have a reasonable basis to believe that a recommendation is suitable for a customer based on the client s financial situation and needs this rule assumes that the broker dealer has completed a review of the current facts and profile of the customer including the customer s other securities and investments before making any purchase sale or exchange of a security on the client s behalf aml and kycthe u s financial crimes enforcement network fincen requires both customers and financial institutions to comply with kyc standards to prevent illegal activity specifically money laundering aml anti money laundering is a term for the range of measures and processes used to achieve regulatory compliance kyc is a component of aml fincen requires financial institutions to understand the type and purpose of the customer relationship and develop a customer risk profile used as a baseline for detecting suspicious customer activities financial institutions must also maintain current and accurate customer information and continue to monitor accounts for suspicious and illegal activities when detected they are required to promptly report their findings kyc and cryptocurrencythe cryptocurrency market is praised for providing a decentralized medium of exchange that promotes confidentiality however these benefits also present challenges in preventing money laundering criminals see cryptocurrency as a vehicle to launder money and as a result governing bodies are looking for ways to impose kyc on cryptocurrency markets most cryptocurrency platforms are considered money services businesses msbs and must comply with anti money laundering aml laws which require customer identification programs and certain reporting and recordkeeping procedures fiat to crypto exchanges facilitate transactions involving fiat currencies and cryptocurrencies since fiat currency is the official currency of a nation most of these exchanges employ a measure of kyc and financial institutions would have vetted their customers according to kyc requirements the penalty assessed against bitcoin mixer larry dean harmon for violating anti money laundering laws in dec 2020 fincen proposed that cryptocurrency and digital asset market participants submit maintain and verify customers identities this rule classifies certain cryptocurrencies as monetary instruments subjecting them to kyc requirements the proposed rule is slated for final action in feb 2024 