Glossary · Investors & Compliance
Know Your Customer (KYC)
Know your customer (KYC) is the process of verifying an investor’s identity, ownership and risk profile before and throughout the business relationship.
KYC is a core part of a fund’s anti-money laundering program. At onboarding, the fund or its delegate collects and verifies identity documents, proof of address, and for entities, constitutional documents, directors and ultimate beneficial owners, often using a 25% ownership threshold. Source of funds and, for higher-risk investors, source of wealth are also documented.
Investors are risk-rated based on factors such as jurisdiction, investor type, politically exposed person (PEP) status and sanctions screening results. Higher-risk investors require enhanced due diligence and more frequent periodic review. Screening against sanctions and PEP lists continues throughout the relationship.
Pitfalls include accepting subscriptions before KYC is complete, relying on expired documents, weak beneficial-ownership look-through for complex structures, and no trigger for re-review when an investor’s circumstances change. Clear delegation between the fund, manager and transfer agent is essential.
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