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Definition: Know Your Customer is a principle that is also called Customer Due Diligence that prescribes that a financial institution has to know its customer well before he/she is accepted as a customer. Before someone can open an account, purchase an investment product or take out a mortgage or loan, he or she must be identified and screened: who is this person, of what country is he a tax resident, can he pose a risk, what are the intentions with regard to the financial product to be purchased?

Following various legislation including the Common Reporting Standard and the Foreign Account Tax Compliance Act, it has become mandatory for financial institutions to follow KYC.