How Does a Lack of Know Your Customer (KYC) Procedures Increase Counterparty Risk?

A lack of KYC means the identity and financial stability of the counterparty are unknown. This opacity makes it impossible to assess their creditworthiness or their potential involvement in illicit activities.

Without KYC, the risk of dealing with a financially unstable or fraudulent entity, and thus the counterparty risk, is significantly heightened.