Which of the following describes the purpose of KYC?

The purpose of KYC, or Know Your Customer, primarily focuses on ensuring that financial institutions can accurately identify and verify the identities of their clients. This process plays a crucial role in preventing money-laundering activities, as it helps institutions monitor the movement of funds and detect any suspicious behavior that could indicate unlawful activities. By understanding the customer’s financial behavior and background, institutions can mitigate the risks of financial crimes, including money laundering and fraud.

KYC requirements are designed to establish a framework for banks and financial services to make informed decisions about the risk associated with each customer, thereby contributing significantly to the overall integrity of the financial system. This is why the emphasis on preventing money-laundering activities is central to KYC protocols. Other options may involve aspects of customer interaction or compliance but do not encapsulate the core objectives of KYC as effectively.