What is the purpose of Know Your Customer (KYC) regulations?

The purpose of Know Your Customer (KYC) regulations is primarily to assess the identity and risk of customers. KYC is a vital aspect of a bank's compliance and risk management framework. By verifying the identity of customers and understanding their financial dealings, banks can better prevent fraudulent activities, money laundering, and other illicit financial activities.

KYC regulations require financial institutions to collect comprehensive information about their clients, including personal identification and understanding their financial behavior. This information helps banks segment customers based on risk profiles and tailor their services accordingly. It also ensures that the banks remain in compliance with laws and regulations aimed at promoting financial integrity and security.

Therefore, the core focus of KYC is on risk assessment and identity verification, making it essential for safeguarding the institution and the financial system as a whole.