Anti-Money Laundering
10 Aug 2026

What does KYC mean? Know Your Customer explained simply

Bridgly Editorial Team
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Female clerk in a real estate office checking the ID data of a corporate client on a laptop
Table of contents

KYC is a practical term, not a legal term

KYC stands for "Know Your Customer" — „Kenne deinen Kunden“ in German. The abbreviation does not appear in German law. What experts call KYC is referred to in the German Money Laundering Act (GwG) as customer due diligence requirements; this is the official heading of the third part (Sections 10 to 17 GwG). The purpose is to prevent money laundering and terrorist financing. The specific catalog of obligations is set out in Section 10 GwG under the heading "General due diligence requirements", and the customer check itself in Sections 11 and 12 GwG as "identification".

The five general due diligence requirements

Section 10 (1) GwG lists five obligations; together they form the KYC process:

  1. Identification of the contracting party and, where applicable, of the person acting on its behalf.
  2. Clarification of the beneficial owner, in the case of legal persons including the ownership and control structure.
  3. Obtaining and assessing the purpose and nature of the business relationship.
  4. Screening for politically exposed persons (PEPs), their family members, and close associates.
  5. Continuous monitoring of the business relationship, including the transactions, with the documents updated "at appropriate intervals" — the article on the red flags of money laundering collects indicators of conspicuous constellations.

When checks must be carried out

Section 10 (3) GwG names four occasions: when establishing a business relationship, for certain transactions outside a business relationship, in the event of suspicion of money laundering or terrorist financing, and in the event of doubts about the identity information collected.

Thresholds apply to transactions outside a business relationship: 1,000 euros for money transfers and for transfers of crypto-assets, 15,000 euros for other transactions. No threshold applies in the event of suspicion or doubts.

Under Section 11 (1) GwG, identification must in principle take place before the business relationship is established or the transaction is carried out. Section 11 (4) GwG lists which information must be collected: for natural persons, name, place of birth, date of birth, nationality, and address; for legal persons, company name, legal form, registration number, registered address, and legal representatives. Section 12 GwG governs permissible proof — from an official photo ID to an extract from the commercial register.

The beneficial owner and the Transparency Register

Under Section 3 (1) GwG, the beneficial owner is the natural person who ultimately owns or controls a company. Section 3 (2) GwG specifies this: more than 25 percent of the capital shares or voting rights, or control in a comparable manner. If no one can be identified even after a comprehensive review, the legal representative, the managing partner, or the partner of the contracting party is deemed to be the fictitious beneficial owner.

The Transparency Register is not generally accessible to the public. Section 23 (1) GwG permits inspection by authorities, courts, obliged entities, and third parties only upon proof of a legitimate interest — the basis is the judgment of the European Court of Justice of November 22, 2022, on unrestricted public access.

Simplified, enhanced — and what PEP means

The scope of the check depends on the risk. Where the risk is demonstrably low, the measures may be reduced under Section 14 GwG; transaction monitoring remains required. Where the risk is higher, enhanced due diligence requirements under Section 15 GwG apply in addition.

Four case groups mandatorily trigger the enhanced due diligence requirements under Section 15 (3) GwG: a politically exposed person (no. 1), a connection to high-risk third countries (no. 2), particularly complex or unusually large transactions without an apparent economic purpose (no. 3), and cross-border correspondent relationships (no. 4). Under Section 1 (12) GwG, a politically exposed person is anyone who holds or has held a high-ranking prominent public office.

Which states are considered high-risk third countries within the meaning of Section 15 (3) no. 2 GwG follows from Delegated Regulation (EU) 2016/1675; the FATF list, about which BaFin provides information in Circular 07/2026 (GW) of July 13, 2026, is not identical to it.

Whom the obligations affect — far beyond banks

Section 2 (1) GwG lists 16 categories of obliged entities. In addition to credit institutions and financial services providers, these include, among others, real estate agents, traders in goods, art intermediaries, gambling providers, and auditors and tax advisors. Lawyers, patent attorneys, and notaries are also covered, but only for certain listed activities such as real estate transactions or company formations. All obliged entities must also train their employees regularly; the article on the GwG training obligation covers scope and frequency.

What the EU Anti-Money Laundering Regulation changes

Regulation (EU) 2024/1624 — the EU Anti-Money Laundering Regulation — is in force; its due diligence requirements will in future harmonize the GwG regime across the EU. It provides for an EU-wide ban on cash payments over 10,000 euros and an expanded group of obliged entities, which Article 3 of the Regulation extends to, among others, crypto-asset service providers, crowdfunding platforms, and traders in luxury goods.

The annual report of the Financial Intelligence Unit shows 374,693 suspicious activity reports for 2025, around 41 percent more than in the previous year (published on July 21, 2026). The figure reflects reporting volume, not proven criminal offenses.

FAQ

What does KYC stand for?

For "Know Your Customer". The term comes from practice and does not appear in the law. The German Money Laundering Act (GwG) speaks of customer due diligence requirements (Sections 10 to 17 GwG) and of identification (Sections 11 and 12 GwG).

Does KYC only apply to banks?

No. Section 2 (1) GwG names 16 categories of obliged entities. In addition to credit institutions and financial services providers, these include, among others, real estate agents, traders in goods, art intermediaries and art storers, organizers and brokers of gambling, as well as auditors, tax advisors, and tax agents. Lawyers, patent attorneys, and notaries are covered for certain listed activities.

From what amount must identification take place?

Always in a business relationship. Outside of one, Section 10 (3) GwG specifies 1,000 euros for money transfers and crypto-asset transfers and 15,000 euros for other transactions. Separate thresholds under Section 10 (5) to (6a) GwG apply to individual groups of obliged entities. No threshold applies in the event of suspicion or doubts.

Who is the beneficial owner?

Under Section 3 GwG, the natural person who ultimately owns or controls a company. As the threshold, Section 3 (2) GwG names more than 25 percent of the capital shares or voting rights. If no one can be identified, the legal representative takes this place as the fictitious beneficial owner.

Can the public view the Transparency Register?

No. Section 23 (1) GwG permits inspection by authorities and courts, by obliged entities for the fulfillment of their due diligence requirements, and by third parties only upon proof of a legitimate interest. The former unrestricted public access was restricted following the ECJ judgment of November 22, 2022.

Sources

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