What Are The 3 Components Of KYC Compliance?

Key Takeaways.

1. KYC compliance is essential for AML strategy, helping businesses verify identities, detect suspicious behavior, and prevent fraud and money laundering.

2. The three core components of KYC are customer identification program, customer due diligence, and ongoing monitoring.

3. AI-driven automated KYC is rapidly becoming the industry standard, with adoption rising from 42% in 2024 to 82% in 2025 due to faster onboarding, higher accuracy, and better compliance.

4. Youverify enables seamless automated KYC and AML compliance, providing businesses with faster onboarding, fraud detection, and reliable due diligence through an all-in-one platform.

Introduction. 

According to a statistical report from Fenergo, advanced technology adoption for KYC/AML compliance has increased sharply, with reported use of AI tools increasing from 42% in 2024 to 82% in 2025. Leading financial institutions and firms in the UK, US, and Singapore have adopted the use of AI tools for customer identity verification, much more in 2025, increasing the rate of customer onboarding and modernizing compliance. 

KYC compliance is critical in helping businesses and financial institutions keep their operations safe against criminal activities. Non-compliance with KYC procedures can result in penalties, such as huge fines and reputational damage. For example, in 2020, financial institutions faced a fine of almost $10.4 billion for AML compliance and KYC-related violations.  

KYC process is divided into 3 main components, which are Customer Identification Program (CIP), Customer Due Diligence (CDD), and Ongoing Monitoring. Each of these components plays a curial and unique role in fighting against fraud and financial crimes.  

What is Know Your Customer (KYC)?

KYC stands for Know Your Customers. This is the process of verifying customers' identity before providing services. Financial institutions such as banks and fintech adopt the KYC process to know and ensure their customers are who they claim to be.

KYC compliance is a requirement designed to prevent fraud, money laundering, terrorist financing, and other criminal activities. 

What is KYC’s role in AML compliance?

Anti-money laundering (AML) can be referred to as laws laid down to prevent criminals from performing money laundering. 

AML is basically how businesses stop fraudsters from using their platforms to move, disguise, or profit from dirty money. 

KYC checks help detect suspicious activities early through verification of identities. That way, businesses can know who they are dealing with, making it easier to prevent money laundering.

What Organizations Need KYC?

1. Banks and financial institutions. 

Banks must run the KYC process on their customers to be sure that they are not using the accounts for fraud or money laundering.

2. Real estate firms.

Real estate firms deal with high-value properties, which attract money launderers that want to use illegal money to acquire legitimate properties or assets.

3. Financial Technology (FinTech) companies. 

Fintech such as digital wallets, payment platforms and loan apps need to do KYC checks to find out if they are not dealing with fraudsters with fake identities 

4. Cryptocurrency exchanges. 

Those in the crypto world use KYC processes in their dealings with customers to find out if they are not being used to fund terrorism, launder money, or perpetrate fraud.

5. Gaming and gambling platforms. 

Platforms such as online casinos and sports betting platforms perform KYC checks to ensure that they are not being used by criminals to launder money or perpetrate other illicit activities.

6. Legal and accounting firms. 

Legal firms should also have KYC process in place for all their clients because they handle sensitive data like court cases, orders, transactional information, and so much more.

What Are The 3 Components Of KYC Compliance?

KYC takes three processes, which work hand-in-hand to protect each other. These processes include:

1. Customer Identification Programme (CIP)

This is the bedrock of any KYC process. It involves the gathering of customer identity information, which includes elements like the customer’s name, date of birth, address, or social number. It does this through the collection and verification of identity documents like international passports, driver’s licenses, and voter registration cards. Once this information has been gathered, it can be verified against official or governmental databases to see if the person is really who they say they are.

2. Customer Due Diligence (CDD)

This process analyzes the customer for the potential risk he or she poses to the organization. It checks for whether the customer is a Politically Exposed Person (PEP) or if he or she has a history of suspicious transactions or other disturbing issues. This KYC process also confirms if the customer is a low, medium, or high-risk person. This helps organizations decide if they can do business with the customer or not.

3. Ongoing Monitoring

This process involves maintaining AML compliance strategy. Business and financial industries need to continuously monitor the customer’s transactions for suspicious activity. Incidents such as changes in spending behavior or sudden, unexplained large transactions can be a red flag showing suspicious activity.

Automated KYC vs. Manual KYC   

KYC verification plays an important role in AML compliance, safeguarding businesses from fraud and criminal activities. Today, organizations are choosing between manual KYC and automated KYC. While both aim to verify customer identities, the differences in speed, accuracy, scalability, and regulatory reliability are significant.

Manual KYC Process 

Manual KYC checks rely on human review, where they manually inspect documents, input data, perform due diligence, and confirm identity information.
Although it can work for small organizations with limited volumes, manual KYC process often means,

1. Longer onboarding times
 

2. Higher error rates due to human oversight
 

3. Difficulty managing large customer volumes
 

4. Increased compliance risk

 

Automated KYC process 

Automated KYC checks replace manual checks with AI-powered verification, OCR extraction, biometric matching, and real-time data validation. This KYC process improves the speed and accuracy of identity verification while enhancing AML compliance strategy for businesses. 

The automated KYC process is

1. Instant document and identity verification
 

2. Reduced fraud through biometric and liveness checks
 

3. Higher accuracy with AI-driven decisioning
 

4. Seamless integration into onboarding journeys
 

5. Stronger, trackable compliance audits

 

Achieve automated KYC standards with Youverify.

Automated KYC checks are the first role call for business to ensure compliance and collection of customers' identity information is swift and frictionless during onboarding process.

Youverify offers business and financial industries KYC due diligence and AML checks in the same breath, staying compliant with AML strategies. Increasing customer onboarding rates and detecting and preventing fraud in one seamless platform. To achieve the automated KYC requirement, book a free demo.

Frequently Asked Questions 

Q1. What are the 3 components of KYC?

The 3 components of KYC are 

1) Customer identification program (CIP).

2) Customer Due Diligence (CDD) 

3) Ongoing Monitoring

Q2. What are the three types of risks in KYC?

Risks in bank accounts can be categorized under KYC as high, medium, and low risk categories.

Q3. What is KYC? 

KYC is the process of verifying identities of individuals to prevent illegal activities like fraud and money laundering