What does the term "Know Your Customer" (KYC) refer to in banking compliance?

The term "Know Your Customer" (KYC) refers to procedures that banks utilize to verify the identity of their clients. This verification process is crucial for financial institutions to ensure they understand their customers' identities, financial activities, and the risks associated with them. KYC helps prevent identity theft, financial fraud, money laundering, and the financing of terrorism by gathering information such as the customer's name, picture identification, and other relevant details to assess the risks of doing business with that client. By implementing effective KYC measures, banks can comply with regulatory requirements and uphold the integrity of the financial system.