What is KYC?

KYC stands for “Know Your Customer.

If you participate in cryptocurrencies as a money service business you must know, and comply with KYC. For example, if you are thinking about starting a Bitcoin exchange, a Bitcoin ATM, or even an ICO, (Initial Coin Offering) you must comply with KYC requirements.

So how do you “know your customer”? As Supreme Court Justice Potter Stewart stated when attempting to define pornography, “I know it when I see it.”

The Financial Crimes Enforcement Network, (FinCEN) does not set forth exact requirement that comply with KYC, however, there are items of information that you should gather from your customers. If you operate a money service business (MSB), you should think about gathering the customer’s:

Full Name

Residence address

Citizenship

Birth date

Photo of government issued ID (Driver’s License, Passport, ID card)

Social Security number or Tax Identification

Bank Statement

Utility Bill

Photo of bank card (If necessary for funding)

Your Upset Customers

Your customers will think this information is burdensome, however, you must protect yourself from unwittingly facilitating money laundering, terrorism, and corrupt acts.

I know your customers will be upset and will not understand why your are requesting all of this private information. I know, because I’ve been on the receiving end of this.

A few years ago I signed up for a peer-to-peer online bank. As a part of the sign up process, I was asked to provide information such as a current utility bill, my driver’s license, and a photo of my bank card.

This was about a year before I discovered Bitcoin and crytocurrency. At the time, I had not idea what KYC, AML, or the Howey Test was.

So after gathering up all the required information, including providing an exact picture of myself (yes, the photo they required had to be the proper size, profile, and lighting) I uploaded the information and sent it to the bank. Thinking back on it, the photo requirement was as stringent as applying for a U.S. passport.

Years later, I now know that the bank needed this information to comply with FinCEN’s Know your Customer requirements.

If you own or operate a money service bank or are a money transmitter, you must know KYC.

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