Financial Glossary
Know Your Client (KYC)
Know Your Client (KYC) is a regulatory and internal compliance process requiring financial institutions and certain other businesses to verify customer identity, understand the nature of the customer relationship, and assess ongoing risk of financial crime. KYC typically involves three components: Customer Identification Program (CIP) to verify identity documents; Customer Due Diligence (CDD) to understand the customer's business and risk profile; and Enhanced Due Diligence (EDD) for higher-risk relationships such as politically exposed persons or complex ownership structures. KYC is required under anti-money-laundering (AML) regulations in the US (Bank Secrecy Act), EU (AMLD directives), and most global jurisdictions.
Problem & Application
A crypto-focused accounting client onboarding with Parikh Financial triggers an EDD review because the source of funds includes DeFi protocol yields and mining proceeds -- categories that regulators flag as higher-risk. The KYC process collects government-issued ID, beneficial ownership documentation for any LLC, proof of address, and a written explanation of transaction sources. If the firm cannot satisfactorily verify identity or source of funds, it must decline the engagement to avoid potential Bank Secrecy Act liability. For PE-backed campground roll-up clients, KYC matters at closing: lenders and title companies run their own KYC on the GP entity, so having clean, organized corporate docs and a clear ownership chart materially speeds the closing process.
In Short
KYC is a cornerstone of financial integrity and compliance, protecting institutions and economies from illicit activity while fostering secure client relationships.