How Does KYC Work?

In a world where financial crime grows more sophisticated by the day, investor verification isn’t just a checkbox, it’s a regulatory necessity. That’s why every fund built on Sweater’s platform benefits from a fully managed Know Your Customer (KYC) and Anti-Money Laundering (AML) process designed to protect your fund and your investors from fraud and non-compliance.

What Is KYC, Really?

KYC, short for Know Your Customer, is a regulatory requirement that ensures financial institutions and fund platforms verify the identity of every investor before allowing them to invest. It’s the first line of defense against fraud, money laundering, and other financial crimes. The process typically includes gathering personal data, validating identification documents, checking government and financial databases, and monitoring transactions post-onboarding.

At Sweater, we’ve streamlined this process for our managers by handling AML/KYC compliance end to end, using secure, modern tools integrated directly into the onboarding flow.

A Risk-Based Approach to Identity Verification

Sweater collects and verifies essential investor information like name, date of birth, address, SSN, and a valid government ID through a seamless digital experience. Our tools confirm that each investor is who they say they are using a combination of:

• Real-time ID and selfie verification
• Device and behavior analysis to detect fraud or spoofing
• Government and financial database checks
• Email, phone, and network reputation scoring
• Monitoring for synthetic or stolen identities
  
  

Behind the scenes, our system checks investor data against:

• The Bank Secrecy Act (BSA)
• USA PATRIOT Act
• FinCEN guidelines
• Applicable state and regional compliance laws

And we don’t stop after onboarding. Ongoing monitoring ensures suspicious behavior, like changes in risk profile, high transaction volume, or links to politically exposed persons (PEPs) is flagged and escalated for manual review.

We provide AML/KYC infrastructure to support your compliance obligations.

Every fund on Sweater’s platform benefits from built-in AML/KYC infrastructure. Based on investor risk tiering, our system automatically routes higher-risk profiles for deeper review or escalates directly to our compliance team. For qualified managers, this means:

• Investor identities are verified in seconds, with higher-risk cases escalated for further review
• All data is encrypted and securely stored
• Ongoing monitoring and suspicious activity reporting is included
• Quarterly audits ensure compliance stays on track
• We support Suspicious Activity Reports (SARs) reporting requirements in alignment with FinCEN obligations.

You focus on running your fund, we’ll handle the compliance behind the curtain.

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Investor-Ready, From Day One

From the moment you launch your fund with Sweater, AML/KYC is one less thing to worry about. Our platform handles identity verification, compliance monitoring, secure storage, and audit readiness so that you can meet investor expectations and regulatory obligations with confidence.

Want to learn more about how Sweater can help simplify fund operations and protect your platform? Let’s talk.

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The information contained in this post is provided for informational and educational purposes only and should not be construed as investment, legal, or tax advice. The content does not constitute an offer to sell, or a solicitation of an offer to buy, any securities or investment products.

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