Article By James Borg
In the financial services industry, trust remains the cornerstone upon which all relationships are built, and it is based on one fundamental principle: knowing who you are dealing with. This is the essence of the Know Your Customer (KYC) process, and even though it may appear to be a bureaucratic process, it’s one of the strongest safeguards against financial crime and reputational risk, and it is also the first step towards building strong, long-term and successful client relationships.
In recent years, the financial services sector has undergone significant reforms. Both the Malta Financial Services Authority (MFSA) and the Financial Intelligence Analysis Unit (FIAU) have strengthened their supervisory frameworks, emphasising that compliance must extend beyond formality and a robust KYC process is indispensable. Verifying clients’ identities, assessing the legitimacy and provenance of their funds, and understanding their investment objectives, is crucial to adhere to financial regulations such as the Markets in Financial Instruments Directive II (MIFID II) and for the prevention of money laundering, funding of terrorism and other illicit activities.
Failing to adhere to the abovementioned due diligence threatens the integrity of our sector and could discourage investors’ interest in our industry. Strong KYC practices are therefore needed to protect not only the businesses but also the financial services industry, which is heavily reliant on investor confidence.
Too often, KYC is viewed through the lens of regulation as a process primarily designed to satisfy regulatory obligations, but it’s far more than that. A company that cuts corners on due diligence might appear efficient at first glance, but it exposes itself to serious risks and should raise concerns. KYC exists not only to protect institutions, but it is also designed to safeguard the interests of investors themselves.
Beyond compliance, KYC also provides valuable insight. By truly understanding a client’s background, financial situation, knowledge, experience, risk tolerance and goals, financial institutions can provide services and products that genuinely suit the investor’s needs. In an industry where “one size fits all” simply doesn’t apply, understanding the client is essential and the more transparent a client is during the KYC process, the more effectively the company can tailor its recommendations and investment strategy. Transparency naturally builds trust, which leads to lasting financial relationships and the avoidance of the unnecessary costs clients incur when changing investment strategies and financial advisors.
There’s no denying that KYC can be demanding but it’s important to understand that it’s not optional. Collecting documentation, verifying data, and maintaining up-to-date records require time and resources. However, a lack in compliance carries far greater financial and reputational costs.
Companies are willingly turning to and investing in technology to improve their efficiency in KYC rather than considering these processes as a regulatory burden. With the implementation of digital onboarding tools, automated screening systems, and other digital platforms, companies can maintain compliance while providing clients with a smoother and more convenient experience. Malta’s obligations are part of a broader picture. As members of the European Union, we are subject to the evolving anti-money laundering (AML) framework. The newly established EU Anti-Money
Laundering Authority (AMLA) commenced operations in July 2025 and is scheduled to begin direct supervision on member states in 2028. AMLA aims to promote greater consistency, enforce stricter oversight and more uphold rigorous standards across member states. In parallel, the European Securities and Markets Authority (ESMA) continues to strengthen the EU’s financial regulatory framework under directives such as MiFID II. Together, these frameworks ensure that national authorities apply uniform standards of market conduct, investor protection, and transparency. The alignment between ESMA’s securities regulation and AMLA’s supervisory mandate reflects the EU’s broader goal of building an integrated and resilient financial system that safeguards both market integrity and financial stability.
Ultimately, the KYC process is not about paperwork, it is about principles. Every verification and background check contributes to a stronger financial system, ensuring that our sector remains transparent, credible, and trusted. Companies that approach KYC as a compliance chore may struggle to stay competitive, whereas those that make it a cornerstone of their business values foster trust, enhance their credibility, and position themselves for sustainable growth.
Because at its core, knowing your customer is not just a regulatory requirement, it’s the foundation of a trusted and resilient financial services industry.
James Borg is Head of Client Management at Curmi & Partners Ltd.
The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd. is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.