What is KYC (Know Your Customer)? KYC Is …

What is KYC

Know Your Customer or KYC is a term that is very familiar to the world of banking and finance. In short, KYC is a preventive security system used by the banking and financial industry.

So, what is KYC? Why is KYC needed in the cryptocurrency world? And how do you do the Know Your Customer process? Here are some reviews for you.

What is KYC?

KYC stands for know your customer. KYC itself is simply a process of introducing a particular bank or financial industry to customers who will use their company’s services.

This also happens in the world of crypto currency where companies that provide crypto currency will try to get to know their customers through this know your customer mechanism.

The purpose of having a know your customer mechanism is for the security of the company as well as customers. Thus, both the customer and the financial company concerned can be safe from various criminal acts.

In Indonesia, the KYC process itself has been regulated in laws and regulations. KYC is regulated in Law Number 8 of 2010 concerning Prevention and Eradication of Money Laundering Crimes Article 18 Paragraph 5.

In the law, the principle of knowing your customer or knowing your customer must include identification of service users, verification of service users, and monitoring of service users. Usually, several things are needed in this KYC, including full name, identity card (can be ID card/passport), job, and crypto currency.

Why Should There Be KYC in the Crypto Industry?

As stated in the previous point, the main purpose of the KYC process in the financial and banking industry is to prevent criminal acts from occurring to customers and the financial companies themselves.

By knowing the data owned by customers or customers through the KYC mechanism, banking or financial companies, including cryptocurrencies, can identify potential criminal acts, such as money laundering, terrorism funding, and other crimes.

Therefore, the KYC process itself is mandatory for everyone who wants to get complete financial services. The files that will be requested by the bank or financial company depend on their respective policies. However, usually what is definitely needed is a customer’s identity card.

This KYC mechanism is increasingly being adopted by the cryptocurrency industry. Cryptocurrency companies are starting to implement KYC on their customers, either through their own policies or being required by local government policies.

With KYC, the cryptocurrency industry that works in a very sophisticated blockchain world is able to minimize the potential for cyber crime.

Until now, cybercrime in the blockchain world has been very high. With KYC, it is hoped that customers and companies can feel safe from the potential for fake accounts and cybercriminals to emerge.

In addition, the know your customer mechanism on the exchange itself is to avoid various risks that may arise in their business practices, such as customer transactions, legal, reputational and operational risks.

Cryptocurrency exchanges also require data from customers obtained through the KYC mechanism to report transactions that have occurred within their company to the authorities in each country.

How KYC Works in the Crypto World

In the world of banking, KYC can be done in two ways, namely online and offline. The first process of KYC is usually carried out by collecting the prospective customer’s complete data, such as full name, identity number, date of birth, address, etc..

There are also various methods, sometimes there is KYC which only requires documents or identity online. However, there are also those who have to make video calls/in-person meetings and complete customer background checks.

Usually, video calls/in-person meetings and background checks aim to find out the risks the bank has to take if accepting customers like you.

If you have done KYC, the bank will carry out a customer due diligence (CDD) process. This CDD is a deeper process to find out various transaction histories of prospective customers, information about the list of sanctions, corruption risks, money laundering risks, and politically exposed persons (PEPs).

After that, the bank company will always check the transactions made by the customer to ensure that there is no risk of corruption, criminal activity or suspicious movements in the customer’s account.

Meanwhile, for the cryptocurrency industry, the KYC that is implemented may be different and must be adjusted to existing country regulations. Thus, the KYC implemented in the cryptocurrency industry will not be uniform from one company to another.

Each crypto industry will be greatly affected by the policies of the country where the company is domiciled regarding checking data from their prospective customers. Until now, there have been several companies and countries that have implemented KYC in the crypto industry.


Muhammad Zaki Fajrul Haq
Author: Muhammad Zaki Fajrul Haq

Follow me at @mzfajrulhaq (Instagram) or @ZakiFajrul (Twitter).

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