Does the “Know Your Customer” (KYC) Rule Apply to the Enforcement of Fiduciary Duty?
KYC rules require financial institutions to verify the identity of their clients. While KYC itself is primarily for anti-money laundering (AML) and counter-terrorist financing (CTF), it indirectly supports the enforcement of fiduciary duty.
By identifying the client, the intermediary can establish the relationship where the duty applies. More importantly, if front-running occurs, KYC helps regulators identify the affected client and the guilty party for legal action.
Glossar
Fiduciary Duty
Obligation ⎊ Fiduciary Duty in the context of crypto finance requires custodians, prime brokers, or centralized exchange operators to act solely in the best financial interest of their clients, especially when managing collateral or executing complex derivatives instructions.
Enforcement
Regulation ⎊ Enforcement within cryptocurrency, options trading, and financial derivatives primarily manifests as the application of existing securities laws and the development of novel frameworks to address unique risks.
KYC
Verification ⎊ KYC within cryptocurrency, options trading, and financial derivatives represents a suite of due diligence procedures employed to ascertain the identity of participants and assess associated risks.