KYC: What is it and how to face the challenges of its implementation?

KYC stands for knowing your customer (“know your client” in Spanish). It is a process that companies and financial institutions use to carry out the identity verification of your clients.

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Salvador Del Valle
February 16, 2024

What is KYC?

KYC stands for knowing your customer (“know your client” in Spanish). It is a process that companies and financial institutions use to carry out the identity verification of your clients

KYC processes also allow you to evaluate the credibility of new clients and monitor their financial behavior.

Generally, the goal of this identity verification is to prevent money laundering (AML), terrorist financing, and other financial crimes by ensuring that customers are who they say they are and that their activities are legitimate.

Who must comply with KYC procedures?

Due to digital transformation, the growth of international business and the globalization of trade, KYC is currently relevant for most companies. Any organization that carries out financial or commercial transactions must implement KYC procedures to mitigate risks and comply with regulations.

Companies that must comply with KYC procedures to generate safe and legal transactional environments are:

  • Mortgage credit companies
  • Real estate agents
  • Digital wallets
  • Brokerage houses
  • Financial entities
  • Payment processors
  • Insurance companies
  • e-commerce
  • Cryptocurrency exchange platforms and wallets
  • Financial technology or fintech companies
  • Online gaming and betting sites for real money
  • Telecommunications companies.

What is the importance of KYC?

Although it is mandatory for the financial sector, its usefulness is not limited to it, since the process is useful and valuable in various industries that carry out online transactions, whether it is a website, an e-commerce, an application or an online platform.

In any case, these are the reasons why having a KYC process is important for all of them:

Prevention of financial crimes

The reality is that, according to the United Nations Office on Drugs and Crime (UNODC), between 800 billion and 2 trillion dollars are laundered every year. The KYC process could help prevent money laundering, terrorist financing and other financial crimes, by identifying suspicious transactions.

Online security

One of the main reasons to implement KYC is to ensure the security of sites and platforms. By verifying the identity of your users, you can significantly reduce the risk of fraudulent activities, such as identity theft, personal information theft, and unauthorized transactions.

Normative compliance

In many countries, there are strict regulations related to data protection and the prevention of money laundering. KYC is a measure that helps comply with these regulations, avoiding legal sanctions and fines that could negatively affect your business.

Protection of brand reputation

User trust is a valuable asset online. If users feel that their information is safe on your platform, they will be more likely to continue using your services and share sensitive personal information. KYC proves your commitment to security and privacy, which can improve the perception of your brand.

Improved customer experience

Having a KYC provides an extra level of security to online transactions. But if the process is also fast and intuitive,onboarding It will be smooth and the user experience pleasant. Thanks to this, it is highly likely that a mere visitor to your site will become a customer. regular and loyal

An example is provided by a study of McKinsey which indicates that banks with high customer experience scores have a 15% revenue increase and a 3% growth rate.

Reduction of expenses and increase of income

The occurrence of fraud and scams due to not verifying the client's identity can become a financial and legal problem for companies. Fines for KYC failures or omissions can be costly. On the other hand,fraud reduction will result in savings, either from payment for non-compliance, or from expenses in judicial advice and legal processes.

Elements of the KYC verification process

KYC (know your customer) is a critical part of risk management and security in the financial field and other industries. The process plays a critical role in protecting an organization from illegal activities and financial risks, and begins at customer onboarding.

However, its application goes further in time by executing actions called elements of the KYC process:

Customer Identification Program

Consists in collecting basic customer information, such as name, address, date of birth, and verify your identity using valid documents. The main goal here is to establish a clear identity and verify it using official documents such as passports and ID cards.

Customer identification steps include:

  • Accurate data collection: It must be ensured that the information provided by the client is accurate and complete. The data that is validated and collected is deterministic (CURP, full name, date of birth), probabilistic (telephone, email), AML sanctions lists and identity validation.
  • Document verification: examine and authenticate documents presented by the client to confirm their identity.
  • Updated records- Maintain detailed records of client information and documents used for verification.

Customer Due Diligence (CDD)

It involves evaluating the relationship with the client,understanding your risk profile and monitoring your activities to detect possible suspicious activities.

This step goes beyond mere customer identification and focuses on deeply understand the relationship with the client. CDD involves evaluating the client's risk profile, which involves considering factors such as the nature of their business activities, their financial history and their geographic location, among other data.

The following actions with keys for a correct CDD:

  • Risk Matrix: classify customers based on their risk level, which helps determine the extent of KYC measures required.
  • Activity monitoring- Continuously monitor client activities for potential suspicious or unusual activity.
  • Transaction report: report significant or suspicious transactions to the competent authorities, as part of the prevention of money laundering.

Continuous monitoring

This element is based on the premise that customer information and circumstances can change over time. To maintain the integrity of the KYC process, it is essential to performPeriodic reviews of customer information and update records regularly. This ensures that information remains accurate and relevant.

Key aspects of continuous monitoring:

  • Records update: periodically review and update customer information, including identification data.
  • Risk assessment in progress:continue to monitor the possibility of risk associated with each client, throughout their relationship with the organization.
  • Adaptation to legal and regulatory changes– The KYC process must be aligned with the latest regulations and best practices.

KYC verification methods

There are two main KYC verification methods:manual method and the automated method ore-KYC. Below we explain what each one consists of:

Manual KYC method

Before automated review software existed, companies required their CDD agents to review each of each client's documents manually.This process is slow and with a high possibility of human errors, whether due to lack of legibility of documents, ignorance of current regulations, etc.

Automated KYC method E-KYC

The digitization of KYC processes has made customer identity verification much easier. There are different KYC software options on the market:

  • Selfie verification: This process involves the client taking a photo of themselves. The system then compares the image with a photo of the requested identity document to confirm that they match.
  • Activity verification: It is about monitoring customer actions and behaviors on an online service or platform.
  • Document verification: The review and authentication of documents provided by the client, such as passports, driver's licenses or identification cards, is carried out.
  • Address Test Verification: The address provided by the customer is validated using documents such as utility bills, bank statements or other official documents.
  • Fingerprint verification: a comprehensive solution that combines the previous elements with a deeper analysis of the customer's digital trail. It is used to identify customer authenticity by analyzing behavioral patterns, device usage, transaction history, and other digital data.

KYC regulations worldwide

KYC authentication is a regulatory requirement worldwide. Organizations such as the Financial Action Task Force (FATF) establish international standards for KYC compliance. Taking this framework as a reference, each country has its own local regulations.

Below, we will describe some of the main KYC regulations in different regions of the world:


Banks and other financial institutions are required to implement KYC programs to prevent money laundering and terrorist financing. Additionally, the Patriot Act (USA PATRIOT Act) has strengthened KYC requirements and requires customer identity verification before opening accounts.


In Canada, the Money Laundering and Terrorist Financing Act sets the guidelines for KYC regulations. Canadian financial institutions must implement KYC procedures to identify their customers and report suspicious transactions to the Financial Services Agency of Canada (FINTRAC).

European Union

In the EU, the Anti-Money Laundering Directive (AMLD) sets the KYC rules for Member States. The AMLD has been updated several times to strengthen KYC regulations and combat money laundering and terrorist financing.


KYC regulations vary in Asia depending on the country. For example, in Singapore, the Monetary Authority of Singapore (MAS) sets KYC guidelines for financial institutions. China also has strict KYC regulations, especially in the banking sector, overseen by the People's Bank of China.

Latin America

Most Latin American countries have implemented KYC regulations to address money laundering and terrorist financing issues.

For example, in Mexico, the Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin (LFPIORPI) establishes KYC guidelines for financial institutions and other sectors, and the National Banking and Securities Commission (CNBV) monitors compliance. In 2019, this Latin American country updated its AML laws to comply with FATF standards.

Challenges of implementing KYC regulations

KYC processes have multiple benefits, but they also imply a series of challenges that companies must face to achieve the corresponding normative compliance.

Some of the challenges to overcome for a more effective implementation of KYC are:

Personal data collection method

Definitively stop the manual collection of data and documents to automate the process with APIS and SDK technology.

Income sources

Establishing reliably the origin of income of each client reduces the level of risk of suspicious operations. Today there are digital tools and databases that can provide this information in minutes.

Transaction history analysis

Studying a client's financial background can take a significant amount of time. This can be avoided with an investment in risk management softwares and a proper KYC system for the organization.

Risk management

Using digital verification tools to have fast and transparent processes minimizes the risk of fraud. It is necessary for companies to understand that fraudulent financial operations pose a risk that goes beyond the organization, since it affects society as a whole.

How to Optimize KYC Compliance with Zenpli

At Zenpli we offer you a holistic solution to manage and verify the identity of new clients and users to register on your platform.

Our goal is to accompany the growth of your business by offering you a secure KYC environment and making the user onboarding process fluid and accurate. To thereduce access friction, users will be able to access your company's services more easily.

Through Zenpli APIs and SDKs, it is possible to collect and analyze multiple data points together, making it easy to gain a comprehensive understanding of the user and detect potential correlations that may indicate the use of synthetic identities or fraudulent behavior.

Additionally, our software can be integrated with other identity and fraud protection services to create a completely secure ecosystem, both for the data and for the users who visit the platform.

Contact us to learn more about our services and how we can help you optimize the new customer authentication process and KYC compliance.