What is KYC (Know Your Customer)?

The acronym KYC or Know Your Customer refers to a series of processes designed to comply with a series of regulations that apply to the banking and investment sector, in order to verify the identity of a client, create a profile of it and recognize where the money that mobilizes within a service comes from.

BBasically, a KYC generates a user file in which all the necessary data of that client is recorded and its financial profile is built, so that the relevant entities and authorities can recognize it and the associated level of risk.

The application of KYC has gradually become a mandatory standard to provide financial services. First, in order to maintain the security of the services and second, to recognize that the funds mobilized and the people in their midst are not related to illicit acts or other forms of illegality recognized or attributed to that person.

How does a KYC work?

To achieve all this, the KYC process comprises three phases:

1. First of all, it depends on a customer identification program (CIP). This point establishes the requirements to determine and verify the identity of any person seeking to establish a relationship with a financial institution. The most basic data in this regard are your full name, identity document number, date of birth, residence address and complete tax. Of course, the legislations may require more data to comply with different CIPs, but internationally, the basic data are these.
2. Next, it goes through the realization of the customer due diligence (CDD). At this point, the aim is to identify the client and verify his identity using documents, data or reliable information from independent sources. In addition, the identification of the final beneficiary can be included and reasonable measures taken to verify their identity, so that the financial institution is satisfied that they know who they are. For legal persons and other legal arrangements, this should include financial institutions understanding the ownership and control structure of the customer. At this point, you can also investigate the origin of the funds, especially if the person mobilizes large sums frequently (for example: mobilize more than €10.000 a day to different accounts).
3. Finally, it goes through continuous supervision or enhanced due diligence (EDD) of a customer's account once it has been established. In this last point, we try to know some vital information about the origin of funds or business data of the client. For example, if the client is a businessman, it is tried to know where his business is located, the nature of it and the purpose of its operations. If, for example, the client is an employee, we try to find out where he works, how long he has worked there and his salary, in order to have a more complete profile.

These three points indicated here are basic in KYC and practically apply throughout the world. However, each country or region has its own rules that can tighten or relax certain factors within KYC.

KYC for cryptocurrencies in Europe

In the current scenario of 2026, Know Your Customer (KYC) policies in Europe have reached maturity under the MiCA regulation, whose comprehensive implementation has unified the rules of the game across the 27 Member States. Having successfully completed the transition phases, national authorities now operate under centralized supervision that grants a European passport to Crypto Asset Service Providers (CASPs). This single licensing regime has not only superseded fragmented local regulations but has also established a compliance standard where identity verification is a non-negotiable requirement for any entity wishing to operate legally in the common market.

The major development consolidated during this period is the full implementation of the Travel Rule through the Transfer of Funds Regulation (TFR). Since 2024, and with full enforcement by 2026, service providers have been required to collect and transmit detailed information about both the sender and the recipient for every transaction, regardless of the amount. Furthermore, oversight has been extended to interactions with non-custodial wallets (self-custodial wallets), requiring enhanced due diligence measures to mitigate money laundering risks. Thus, the European framework now stands as one of the most robust in the world, prioritizing full traceability and the integrity of the financial system over the anonymity that characterized the sector's early days.

Why do we need KYC?

The main objective of KYC is to obtain personal information from clients, verify the veracity of the data and classify clients according to their relative risk for the use of banking and financial services. The main intention of this is to prevent dangerous clients from compromising the security of a set of financial services. For example, a customer with a fraud profile within a P2P marketplace is very likely to carry out fraud operations that could compromise the financial security of platform users. Considering that crypto does not offer cashback support, this is a measure that can help reduce such situations.