KYC stands for Know Your Customer, also known as customer due diligence. It is the process banks, finance companies, insurers and other obliged entities use to identify their customers and understand their business, in order to prevent money laundering and terrorist financing. If your bank has ever asked what a transfer is for, that was KYC.
This guide explains what customer due diligence involves, which steps it includes, and how the process can become smoother for both your customers and the team responsible for compliance.
Why do companies need KYC?
Businesses covered by anti-money laundering rules must be able to show that they know who they are doing business with. The aim is to detect and stop suspicious transactions, and to be able to demonstrate the work when the supervisory authority asks.
From 10 July 2027, the EU’s new Anti-Money Laundering Regulation (AMLR) applies. It replaces large parts of national legislation with a single rulebook and tightens the requirements on customer due diligence, beneficial ownership, ongoing monitoring and documentation.
The KYC process in five steps
- Identify the customer. Who is the customer? For individuals, identity is verified, for example with an electronic ID. For companies, registration number, representatives and company details are checked.
- Identify the beneficial owner. Who ultimately owns or controls the company?
- Understand the business relationship. What is the purpose of the relationship, and what kinds of transactions can be expected?
- Assess the risk. Screening against PEP lists (politically exposed persons) and sanctions lists is part of this, together with a risk rating that decides how closely the customer is followed up.
- Monitor continuously. KYC is not a one-off event. Changes in ownership, new list matches or unusual patterns may require updated due diligence.
What is the difference between KYC and AML?
KYC is the process of identifying and assessing the customer, at onboarding and on an ongoing basis. AML (Anti-Money Laundering) is the wider work against money laundering: monitoring, PEP and sanctions screening, handling of deviations and reporting. KYC is one part of AML.
The challenge: due diligence that feels like an interrogation
Many organisations handle KYC in one system, screening in another, cases in the inbox and decisions in documents. That makes the work slow and costly and traceability difficult. For the customer, it means more forms and more waiting.
How KYC can become smooth and digital
A digital KYC process brings everything into one flow:
- Pre-filled forms: data is retrieved and validated automatically against external sources, so customers don’t have to enter what you can already find out.
- Electronic ID and e-signing: identity is secured before the form is even opened, and the customer signs in minutes.
- Screening in the background: PEP and sanctions checks run while the customer fills in the form, and the result decides the next step.
- Rules you control: when regulations or the risk picture change, you adjust forms and risk rules without a vendor project.
- Traceable case management: deviations, investigations and decisions are documented in a structured way, ready for supervisory review.
How others have done it
- LF Finans: customer due diligence for private individuals takes an average of 3 minutes, and up to 1,000 forms can be handled per week. Read the case
- Lannebo: from manual handling taking hours or days to automated KYC, with more than 7,500 digital forms submitted since launch. Read the case
Frequently asked questions about KYC
What does KYC mean?
KYC stands for Know Your Customer. It is the process where a company identifies its customer, understands the purpose of the business relationship and assesses the risk of money laundering and terrorist financing.
What is AMLR and when does it apply?
AMLR is the EU’s new Anti-Money Laundering Regulation (Regulation (EU) 2024/1624). It applies directly in all member states from 10 July 2027 and replaces large parts of today’s national rules. The EU has also set up a new anti-money laundering authority, AMLA.
What is a beneficial owner?
A beneficial owner is the natural person or persons who ultimately own or control a company. Under AMLR, this includes anyone holding 25% or more of the shares or voting rights. Several countries, including Sweden, currently use a threshold of more than 25%.
What is a PEP?
A PEP (politically exposed person) is someone in a prominent public position, such as a government minister, member of parliament or senior judge. Family members and close associates are also covered. Enhanced due diligence is required for PEPs.
How often should KYC be updated?
There is no fixed interval for all customers. Due diligence must be kept up to date and refreshed based on the customer’s risk level: more often for high-risk customers, and whenever something changes in the relationship.
Can KYC be done digitally?
Yes. With electronic ID such as BankID, customers can identify themselves remotely, and their answers can be collected digitally, screened against PEP and sanctions lists and stored with a full audit trail. This shortens handling times and gives a clearer basis for supervision.
Want to see how it works?
Sweet brings KYC, AML and follow-up together in one flow for banks, finance companies and insurers. Explore our use cases or book a demo.
