Know Your Customer (KYC)

Know Your Customer, also called KYC, is a central component of efforts to combat money laundering and terrorist financing.

Glossary
Customer due diligence (KYC)

Explained – what does know your customer (KYC) mean?

know your customer (KYC), often referred to as KYC (Know Your Customer), is a legal requirement obliging firms to verify their customers’ identities and to understand the purpose and nature of their business relationship. The requirements are set out in the Swedish Anti-Money Laundering Act (2017:630) and the EU Anti-Money Laundering Directive. Work on know your customer (KYC) is frequently handled by an AML lawyer to ensure proper compliance. The concept is used primarily in the financial sector, legal practice, real estate and other activities subject to anti-money laundering legislation.

When does know your customer (KYC) apply?

KYC becomes relevant when establishing new customer relationships, when executing transactions above certain thresholds and where there is suspicion of money laundering or terrorist financing. Examples include opening a bank account, completing a property transaction or instructing a law firm. Ongoing business relationships also require regular updates to customer information, including periodic review KYC and KYC refresh activities as appropriate.

Illustration of Know Your Customer (KYC) compliance: a professional completing know your customer (KYC) forms on a laptop, representing AML checks, identity verification and onboarding controls.

Key considerations for know your customer services

To meet the legal requirements for know your customer (KYC), firms and organisations need to implement several concrete measures. Below are important steps to secure.

Verify the customer’s identity through valid identification (customer identity verification / identity verification KYC).
Understand the customer’s business model and the purpose of the relationship (what does know your customer (KYC) mean).
Assess the customer’s risk profile based on, for example, business activity, geography and transaction types (customer risk classification and KYC risk assessment).
Carry out sanctions list screening and PEP screening (politically exposed person screening).
Follow up and update customer information regularly during the relationship (ongoing monitoring KYC and transaction monitoring).
Document all measures and decisions taken (KYC documentation and KYC documentation requirements).
Maintain internal procedures to detect and report suspicious transactions, and to escalate concerns promptly (KYC controls and report suspicious transactions).

By following these steps, organisations can achieve robust and lawful know your customer (KYC). Many firms use specialist KYC services or broader know your customer (KYC) services to operationalise controls efficiently.

Know Your Customer (KYC)

Why is know your customer (KYC) important?

KYC is one of the most central measures in combating money laundering and terrorist financing. Without sufficient knowledge of the customer, organisations risk inadvertently becoming a conduit for illicit transactions. It is therefore an area closely scrutinised by authorities during supervisory inspections.

Well-executed know your customer (KYC) also strengthens an organisation’s internal control environment. By knowing their customers, firms can identify unusual behaviour and act quickly on suspicious activity. This supports a safer and more transparent business environment.

Working systematically with KYC not only ensures compliance with statutory requirements; it also builds trust with customers, partners and authorities, which is critical to long-term credibility. In practice, effective know your customer services, supported by clear procedures for KYC onboarding and periodic reviews, are essential across sectors, including KYC for banks and KYC for law firms.

know your customer (KYC) requires firms to identify their customers, understand the purpose and nature of the relationship and monitor it on an ongoing basis in line with the Anti-Money Laundering Act and the EU Anti-Money Laundering Directive.

KYC is required when establishing new business relationships, for higher-value transactions and whenever suspicions of money laundering or terrorist financing arise. It must also be refreshed when a customer’s profile changes (periodic review KYC / KYC refresh).

KYC is performed through a combination of identity checks, risk assessment and ongoing monitoring. Common steps include:

Verification of identity documents (customer identity verification).
Collecting information on the purpose of the relationship.
Risk classification of the customer.
Follow-up and ongoing monitoring of transactions.

Banks handle large volumes of transactions and are therefore particularly exposed to the risk of misuse for money laundering. Through KYC, banks can build a clear picture of customer behaviour and quickly spot anomalies, protecting both the bank and the financial system.

The board and senior management hold ultimate responsibility, but day-to-day work is often carried out by AML officers. Customer-facing staff play a critical role as they collect and verify information and support the operation of KYC services and know your customer services.

know your customer (KYC) seeks to understand who the customer is and why they wish to establish a relationship, whereas transaction monitoring checks whether a customer’s transactions align with the established profile. The two processes complement each other and are fundamental to effective anti money laundering compliance.