Know Your Customer: Compliance & Verification Guide

Read everything you need to know about KYC here. Learn how our solutions can make your KYC processes more efficient and digital.

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With every customer contact, responsibility increases. Companies that open accounts online, process financial transactions, or execute contracts face a central challenge: they must know who they are dealing with. Criminals exploit digital loopholes to launder money, forge identities, or infiltrate shell companies. "Know Your Customer" (KYC for short) counters this threat with clear rules. Unambiguously identifying customers and business partners fulfills legal requirements and establishes the foundation for long-term customer relationships.

Definition: What is KYC?

KYC stands for "Know Your Customer"—a standardized verification procedure that unambiguously identifies customers and business partners. Originally introduced in banking, KYC is now mandatory across numerous sectors: financial services, insurance, real estate agents, notaries, tax firms, and many more must legally ensure they do not enter into business relationships with unverified individuals or companies. KYC has also become increasingly important in the crypto sector.

KYC is part of compliance management and protects companies against:

Money laundering and terrorist financing
Fraud and identity theft
Reputational damage, fines, prison sentences, and the threatening revocation of business licences

DUE DILIGENCE KYC as Part of the Due Diligence Process

Particularly in a B2B context, KYC is a central pillar of the due diligence process, which assesses potential risks prior to closing business deals. Legal entities must also be verified; this is known as Know Your Business (KYB). In this context, companies must provide data such as company name, legal form, ultimate beneficial owners, commercial register number, and corresponding proof of incorporation, financial statements, etc. For Swiss companies, depending on their legal form, articles of association as well as VAT ID or MWST numbers must additionally be submitted.

KYC due diligence plays an important role in preventing money laundering and financial crime. Ultimately, the core element is the knowledge check of your customers. This means that business partner companies should also be carefully vetted.

Who is Required to Perform KYC Checks?

The obligation to perform KYC checks arises, depending on the obliged entity, from sources such as the EU Anti-Money Laundering Regulation, the German Money Laundering Act (GwG), as well as international standards (FATF, UK Bribery Act, etc.) or industry-specific regulations.

A duty to perform KYC checks exists in particular for:

Banks & credit institutions
Insurance companies
Crypto exchanges & financial platforms
Insurance & real estate agents
Betting & gambling companies
Lawyers, notaries, tax advisors
Art, precious metal & jewellery dealers

Digital providers of gaming or streaming platforms may also be required, depending on their risk profile, to integrate KYC-compliant procedures for online identification or age verification.

What is a KYC Check?

The term "KYC check" describes the concrete execution of the procedure - either during the digital onboarding of new customers or at regular intervals for existing customers with risk potential. The check is carried out as a standardised, simplified, or enhanced check, depending on the risk class.

Information that may be collected includes, among others:

Identity document data
Ultimate beneficial ownership & employment status
Risk assessments & source of funds (e.g. via proof of address or bank statement)
Relevant corporate data
Internal audit logs

This information may only be processed and stored for specified purposes — and is subject to the requirements of the GDPR.

KYC Verification for Individuals

For natural persons, the focus is on:

Proof of identity (e.g. passport, ID card)

Proof of address (e.g. utility bill)

Verification of biometric features

Where applicable, PEP or risk screening

PROCESS The KYC Process: Step-by-Step Explained

A complete KYC process consists of more than just a simple document upload followed by verification. Rather, it is a multi-stage verification process that varies depending on risk, industry, and customer type (individual or company). The KYC process visible to the end customer takes only a few minutes, but the verification process itself in the background can take up to 48 hours. Typically, verification in the software frontend is followed by multiple data cross-checks and reviews in the backend.

The process takes place in the following steps:

Customer Identification

The first step is the clear identification of the contracting parties. Here, standard identity documents such as national ID cards, passports, or driving licences are captured. Verification can take place traditionally in a branch or fully digitally via eKYC.

Authentication and Document Verification

Documents must be checked for authenticity, validity, and match with the person. In digital processes, this is done via AI-powered analysis and biometrics, e.g. with selfie identification.

UBO Determination & Risk Profile

For companies, it is checked who the Ultimate Beneficial Owner (UBO) is, i.e. who is the beneficial owner. In addition, risk factors are evaluated (e.g. source of funds, politically exposed person, PEP list screening).

Sanctions Lists & Compliance Checks

Customer or company data is cross-referenced with national and international sanctions lists. This is not only about terrorism prevention, but also about global economic security.

Audit-Proof Documentation

All collected data, evaluations, and decisions must be legally documented and stored for at least five years—in accordance with Section 8 of the German GwG.

Legal Frameworks

The legal obligation to perform KYC checks stems from several regulatory frameworks, including:

The EU Anti-Money Laundering Directives in combination with eIDAS 2.0
The German Money Laundering Act (GwG), Sections 10–12
The Swiss Money Laundering Act (GwG, SR 955.0)
Due diligence requirements according to FINMA Circular 2016/7
Regulations of Self-Regulatory Organisations (SRO) such as VQF or ARIF
International standards of the FATF as well as the UK Bribery Act / UK Modern Slavery Act and Financial Action Task Force (FATF)

In Switzerland, financial intermediaries, trustees, asset managers, insurance companies, and precious metal dealers in particular are required to perform KYC checks—pursuant to Art. 2–5 GwG (CH).

With PXL GwG Ident, PXL Vision offers a dedicated SaaS solution for this purpose, enabling a fully digital, FINMA-compliant onboarding process including Qualified Electronic Signature (QES)—completely without media breaks or paperwork.

eKYC: The Digital Future of Identity Verification

Digitally conducted processes are referred to as eKYC (electronic Know Your Customer). The advantages are obvious:

High speed
Media-break-free onboarding
Reduced manual effort
Better conversion rate
Scalable compliance processes

eKYC is not only faster; it is above all cost-efficient and indispensable for globally operating digital enterprises.

SOLUTION KYC – Obligation, Protection, and Opportunity in One

A smooth and regulatorily clean KYC process is less a legal necessity than a decisive competitive advantage. Companies that embrace fully digital KYC processes early protect themselves against legal risks, accelerate internal processes, and strengthen customer trust.

Deploying a specialized provider like PXL Vision for the crucial first step of identity verification in the KYC process helps lower fraud risks right where they arise: at the start of a business relationship. Additional modules such as sanctions list or PEP screening as well as AML screening can be easily added by specialized providers via API integration.

In KYC, as in other software-supported processes, a best-of-breed approach has emerged as ideal. Whether in the financial sector, insurance, e-commerce, legal tech, or digital platform business: those who keep their architecture flexible and work with specialists will be among the long-term winners.

Secure and seamless KYC with PXL Vision

KYC compliance is an integral part of the financial industry, but its importance is expanding into other areas of the business world. The main purpose of KYC is to protect companies, institutions and customers by preventing potential crimes.

PXL Vision's identity verification solutions can simplify the KYC process and eliminate human error. Our solution is designed to reduce risk and costs, while improving compatibility with your business processes and convenience for your customers.

Our identity verification solutions

Frequently Asked Questions

When is KYC mandatory?

Whenever there is an increased risk, such as during financial transactions, account openings, or real estate purchases. Industries like banks, insurance companies, notaries, or crypto exchanges are legally required to perform KYC checks.

What is the difference between KYC and AMLR?

KYC (Know Your Customer) is a foundational component of AML (Anti-Money Laundering). KYC is a sub-area of AMLR (Anti-Money Laundering Regulation). While KYC concerns identification, AMLR encompasses all measures for money laundering prevention—including transaction monitoring and suspicious activity reporting.

What documents are required for a KYC check?

For individuals, standard requirements include a valid government-issued photo ID (UK passport, photocard driving licence, or biometric residence permit) and proof of address issued within the last 3 months (such as a utility bill, council tax statement, or bank statement). Unofficial documents like student or employee IDs are not accepted for regulatory compliance. For corporate onboarding (KYB), requirements include Companies House registration documents, proof of corporate address, and UBO disclosures.

What happens if an automatic KYC check fails?

Poor camera resolution, difficult lighting conditions, a slightly damaged identity document, or defective NFC functionality can cause an AI solution not to verify identity at 100% immediately. To avoid losing the customer in such cases (preventing conversion loss), a hybrid approach takes effect. The system automatically routes the case to an internal or external compliance team (Manual Review). These experts can manually review and approve the document within seconds, without requiring the user to restart the onboarding process from scratch.

Know Your Customer: Compliance & Verification Guide

Definition: What is KYC?