Glossary · underwriting

Know your customer KYC

Also called customer identification program, CIP, identity verification, know your customer.

The identity verification a financial institution performs on the individuals behind an account or transaction, driven by anti-money-laundering law and by fraud control.

Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.

What it means

Banks and other covered institutions must maintain a customer identification programme under the Bank Secrecy Act and its implementing rules: collect name, date of birth for an individual, a residential or business street address and an identifying number, verify them, run the customer against government lists of known or suspected terrorists, and keep the records for five years after the account is closed. Sanctions screening under OFAC is a separate obligation, dealt with below.

Beneficial ownership rules extend this to the individuals behind a legal entity customer. 31 CFR 1010.230 requires a covered financial institution to identify and verify each individual who directly or indirectly owns 25 per cent or more of the equity interests, plus a single individual with significant responsibility to control, manage or direct the entity. FinCEN order FIN-2026-R001, issued 13 February 2026, relieved institutions of repeating that exercise at every subsequent account opening for an existing legal entity customer. The underlying requirement stands.

Who is actually covered

This matters and is widely misunderstood, including by people who state it confidently. Banks, credit unions and money services businesses are covered. But the Bank Secrecy Act's own definition of a financial institution, at 31 U.S.C. § 5312(a)(2), is far wider than that and expressly includes, at subparagraph (P), "a loan or finance company". So "we are not a bank, therefore the BSA does not reach us" is wrong as a matter of statute.

What actually keeps merchant cash advance funders and most independent finance companies outside the customer identification and beneficial ownership rules is FinCEN's implementing definition. 31 CFR 1010.100(lll) defines "loan or finance company" for Chapter X purposes by reference to residential mortgage lenders and originators, and the second paragraph of that definition is reserved. The gap is regulatory, not statutory.

They touch the regime at every edge regardless. Their originating bank imposes requirements. Their payment processor imposes requirements. Their capital providers impose requirements. So the identity documents get collected anyway, whether or not a statute compels it.

What you will be asked for

Government-issued photo identification for each owner above a threshold, Social Security number, date of birth, home address, and ownership percentages. Sometimes a voided cheque, a utility bill, or a selfie against the identification document.

Sanctions screening

OFAC screening applies to everyone, without a size threshold and without regard to whether the entity is a bank. A name match against a sanctions list stops a transaction cold and cannot be waived commercially.

Where this one catches people

A KYC failure is rarely explained as one. Funders decline for identity and sanctions issues without stating a reason, and the merchant is left assuming their credit was the problem and reapplying elsewhere with the same result. Common causes are mundane: a name on the identification that does not match the entity records, a home address that has not been updated, an owner whose stake was never formally documented, or a common name generating a screening hit that nobody has time to clear.

Read next

Hard credit pullA credit report request tied to an actual application for credit, recorded on the report where other lenders … Know your business (KYB)Verification of the business entity itself — that it legally exists, is in good standing, operates where it c… LenderThe party whose money is actually at risk in the transaction — which is frequently not the party that markete… Lending licenseState authorisation to make or broker loans, required in some states, for some products, at some sizes — and … StipsThe documents and conditions an underwriter requires before an approval turns into funded money — the list th… UnderwritingThe lender's assessment of whether and on what terms to fund, which in the bank-statement market is driven fa…

Sources and checks

Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.

  1. The customer identification programme rule requires name, date of birth for an individual, a street address and an identifying number, verification, terrorist-list screening, and five-year record retention definition
    Banks must obtain "Name", "Date of birth, for an individual", "a residential or business street address", and "a taxpayer identification number"; the CIP must include "procedures for determining whether the customer appears on any list of known or suspected terrorists".
    Legal Information Institute, Cornell Law School — 31 CFR § 1020.220 - Customer identification program requirements for … corrected Checked 10 Sep 2026 by Find Me Funders research desk
  2. The Bank Secrecy Act’s statutory definition of a financial institution expressly includes a loan or finance company, so "we are not a bank" does not put a funder outside the Act definition
    Section 5312(a)(2) lists, at subparagraph (P), "Loan or finance company".
    Legal Information Institute, Cornell Law School — 31 U.S. Code § 5312 - Definitions and application corrected Checked 10 Sep 2026 by Find Me Funders research desk
  3. FinCEN’s implementing definition of "loan or finance company" is confined to residential mortgage lending and origination, which is what actually keeps other finance companies out of the CIP and CDD rules definition
    Paragraph (lll)(1) addresses only "Residential mortgage lender or originator" — residential mortgage lender, residential mortgage originator, residential mortgage loan — and paragraph (lll)(2) is marked "[Reserved]".
    Legal Information Institute, Cornell Law School — 31 CFR § 1010.100 - General definitions corrected Checked 10 Sep 2026 by Find Me Funders research desk
  4. The beneficial ownership rule uses a 25 per cent equity threshold plus a control prong definition
    It reaches "Each individual, if any, who, directly or indirectly ... owns 25 percent or more of the equity interests of a legal entity customer" and "A single individual with significant responsibility to control, manage, or direct a legal entity customer".
    Legal Information Institute, Cornell Law School — 31 CFR § 1010.230 - Beneficial ownership requirements for legal entit… Verified against source Checked 10 Sep 2026 by Find Me Funders research desk
  5. FinCEN gave exceptive relief in February 2026 from re-identifying beneficial owners at each new account opening, without disturbing the underlying requirement or the CIP rules definition
    Order dated February 13, 2026 grants relief from identifying and verifying beneficial owners "at each new account opening"; it "does not change customer identification program requirements" and addresses only 31 CFR 1010.230(b).
    Financial Crimes Enforcement Network — FinCEN Exceptive Relief Order FIN-2026-R001: Exceptive Relief from Re… corrected Checked 10 Sep 2026 by Find Me Funders research desk
  6. The CDD beneficial ownership requirement remains in force for covered financial institutions definition
    Covered institutions — "U.S. banks, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities" — must "identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls" it.
    Financial Crimes Enforcement Network — CDD Final Rule Verified against source Checked 10 Sep 2026 by Find Me Funders research desk
  7. OFAC obligations apply to all U.S. persons with no size or dollar threshold, unlike the BSA programme rules definition
    "All U.S. persons must comply with OFAC sanctions, including all U.S. citizens and permanent residents" regardless of location, plus "all individuals and entities within the United States, and all U.S. incorporated entities and their foreign branches."
    U.S. Department of the Treasury, Office of Foreign Assets Control — OFAC FAQs: Compliance / Basic Information on OFAC and Sanctions Verified against source Checked 10 Sep 2026 by Find Me Funders research desk

Know your customer — common questions

What does know your customer mean?

The identity verification a financial institution performs on the individuals behind an account or transaction, driven by anti-money-laundering law and by fraud control.

Where does know your customer catch people out?

A KYC failure is rarely explained as one. Funders decline for identity and sanctions issues without stating a reason, and the merchant is left assuming their credit was the problem and reapplying elsewhere with the same result. Common causes are mundane: a name on the identification that does not match the entity records, a home address that has not been updated, an owner whose stake was never formally documented, or a common name generating a screening hit that nobody has time to clear.

Is know your customer the same as an interest rate?

Know your customer is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does know your customer apply to?

It is not specific to one product — it appears across the market.

Is there a worked example of know your customer?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside know your customer?

Hard credit pull, Know your business, Lender, Lending license, Stips.

Has this definition been checked?

Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.