KYC onboarding - the steps to achieve KYC/AML compliance

Trust is everything in finance and always has been, from the days of handwritten ledgers to today’s digital transactions. 

Banks, fintechs, and marketplaces need to know who they are dealing with, not just to follow the rules but to stay secure. 

That’s where KYC (know-your-customer) onboarding comes in. It’s not just a compliance requirement; it’s the foundation of security, transparency, and fraud prevention. Without it, businesses become vulnerable to financial crime, identity theft, and regulatory penalties.

KYC onboarding isn’t just about checking IDs. It’s about creating a seamless, secure experience that protects businesses and customers alike. Let’s break it down step by step.

What is the KYC onboarding process?

KYC onboarding is the process of verifying a customer’s identity before they can access financial services. It ensures that individuals are who they claim to be and that their financial activities comply with regulations designed to prevent fraud, money laundering, and other illicit activities.

Traditionally, KYC meant filling out forms and submitting paper documents, but today’s technology has transformed it into a digital-first process. AI-driven ID verification, biometric authentication, and real-time data checks have made modern KYC faster, more secure, and far more efficient.

KYC onboarding and its relation to AML

KYC and AML (anti-money laundering) go hand in hand. KYC verifies identities, while AML monitors transactions to detect and prevent illicit financial activity. Together, they form a powerful defence against fraudsters, money launderers, and cyber criminals.

Failing to implement a strong KYC process doesn’t just put businesses at risk—it can lead to massive regulatory fines, legal trouble, and reputational damage. In short, KYC isn’t just a formality, but a necessity.

Trapets’ KYC and AML solutions work together to verify identities, detect suspicious transactions, and ensure full compliance with global regulations.

Who needs KYC during onboarding?

KYC onboarding isn’t limited to banks—it’s a must for any business dealing with financial transactions, sensitive data, or compliance regulations. Industries that rely on KYC include:

• Banks and financial institutions: To prevent fraud and ensure compliance.
• Cryptocurrency exchanges: To meet increasing regulatory demands.
• Investment and brokerage firms: To assess risk and prevent market manipulation.
• Online marketplaces and payment providers: To protect against identity theft and unauthorised transactions.
• Real estate agencies: To verify high-value transactions and prevent money laundering.
• Insurance companies: To detect fraud and evaluate policyholder risk.

KYC onboarding steps

A strong KYC process follows a structured approach to ensure compliance, security, and efficiency. These steps help businesses verify identities, assess risk, and monitor financial activity for potential fraud.

1. Customer identification process

The first step in KYC onboarding is confirming the customer’s identity. This step ensures that the person accessing financial services is legitimate:

• Collection of full name, date of birth, and address.
• Verification of government-issued ID, such as a passport or driver’s license.
• In Sweden, electronic identification like BankID is often required for secure verification.
• Cross-checking with global databases to detect potential risks.

2. Customer due diligence

Not all customers pose the same level of risk. Customer due diligence (CDD) determines whether additional verification is necessary:

• Screening for potential red flags, such as politically exposed persons (PEPs) or sanctioned individuals.
• Reviewing financial history and transaction behaviour.
• Assigning a risk level to guide ongoing monitoring efforts.

3. Enhanced due diligence 

For high-risk customers, a deeper level of scrutiny is required. Enhanced due diligence (EDD) applies stricter verification measures:

• Additional document verification, such as proof of income or business registration.
• In-depth financial background checks.
• Heightened transaction monitoring to detect unusual activity.

4. Continuous monitoring

KYC doesn’t end once a customer is onboarded. Continuous monitoring helps businesses stay ahead of fraudulent activity by detecting suspicious behaviour in real-time:

• AI-powered transaction analysis to flag anomalies.
• Ongoing risk assessments based on new financial behaviour.
• Automated alerts for potential money laundering or fraud.

Trapets’ monitoring system continuously scans for suspicious activity, keeping businesses compliant and secure.

5. Reporting and compliance

Staying compliant means keeping records and reporting suspicious activities when necessary. Businesses must:

• File Suspicious Activity Reports (SARs) for flagged transactions.
• Maintain detailed customer verification records for audits.
• Adapt to changing regulatory frameworks to ensure compliance.

Benefits of the KYC onboarding process

A well-implemented KYC process isn’t just about compliance—it’s about trust. It protects businesses, enhances customer relationships, and ensures financial integrity:

• Prevents fraud– Reduces identity theft and financial crime.
• Ensures regulatory compliance – Avoids fines and legal consequences.
• Builds customer confidence – Establishes transparency and credibility.
• Speeds up onboarding – Digital KYC makes verification seamless.
• Safeguards business reputation – Demonstrates commitment to security and compliance.

Common questions about KYC onboarding

KYC onboarding can seem complex, but understanding the essentials makes compliance smoother. Here are answers to some of the most frequently asked questions.

What's the difference between KYC and KYB onboarding?

KYC focuses on individuals, while KYB (know-your-business) applies to companies. Both aim to prevent financial crime but require different documentation.

• KYC verifies individuals through ID and personal information.
• KYB verifies businesses through registration documents and ownership records.
• Both processes ensure transparency and compliance.

Is KYC onboarding mandatory?

Yes, KYC onboarding is a legal requirement in many industries. Failing to comply can result in:

• Heavy fines and regulatory penalties.
• Damage to business reputation and customer trust.
• Increased exposure to fraud and financial crimes.

Automate KYC onboarding with Trapets

Traditional KYC onboarding is slow, costly, and prone to human error. Trapets automates identity verification, risk assessment, and compliance monitoring. Stay ahead of fraud and regulatory changes today.