In Italy's regulatory environment, Know Your Customer (KYC) procedures are essential for guaranteeing adherence to both national Anti-Money Laundering (AML) legislation and EU directives. To preserve operational integrity, stop financial crimes, and preserve customer trust, companies in the insurance, real estate, legal, and financial sectors must abide by these rules.
The Legal Framework for KYC in Italy
The following laws and directives are the main sources of Italy's KYC regulations:
- Legislative Decree No. 231/2007 (as amended): The first main source on our list is the legislative decree. This decree, which mandates mandatory KYC procedures for regulated entities, is a key component of Italy's AML framework.
- EU AML Directives are the second on our list, which address transparency, cross-border compliance, and emerging risks, standardise KYC procedures among member states (4AMLD, 5AMLD, and 6AMLD).
- FATF Recommendations, another item on our list, remarks that Italy strengthens its AML and KYC procedures through national legislation by implementing the Financial Action Task Force (FATF) guidelines.
- Sector-Specific Guidelines: To provide guidance for KYC applications unique to a given industry, organisations such as the Bank of Italy and CONSOB publish regulatory circulars.
What Documents Are Needed for KYC in Italy?
In order to verify a client's identity, the customer identification and verification process entails gathering accurate and trustworthy information. Companies need to gather and confirm the following information:
For Individuals:
- Complete name, birthdate, and location
- Nationality and residential address
- Identity documents issued by the government, such as a passport or carte d'identità
For Legal Entities:
- Details of the company's registration
- Finding advantageous ownership arrangements
- Verification of important decision-makers, such as directors
In order to streamline and secure the verification process, Italy is also promoting the use of SPID (Sistema Pubblico di Identità Digitale) and other electronic identity systems more and more.
KYC Risk Assessment Levels in Italy: SDD, EDD, and More
The risk-based approach (RBA) is a fundamental component of KYC in Italy.
Standard Due Diligence (SDD) is used with clients who pose little to no risk.
Simplified Due Diligence (SDD) is permitted for low-risk entities (such as publicly traded companies in the EU or Italy).
Enhanced Due Diligence (EDD) is necessary for high-risk clients, such as:
- Politically Exposed Persons (PEPs)
- Clients from third countries that the EU has designated as high-risk
- Businesses with intricate or opaque ownership structures
Ongoing Monitoring Obligations
Once a customer is onboarded, KYC continues. Companies must update customer records and keep a close eye on transactions. This continuous responsibility entails:
- Monitoring odd or questionable transactions for possible warning signs
- Notifying the appropriate authorities, such as the Unit for Financial Information (UIF), of suspicious transactions;
- Periodically reevaluating customer profiles in light of changes in behaviour, risk level, or account usage
Recordkeeping Requirements for KYC Compliance in Italy
In order to promote transparency and ease regulatory audits, companies must keep thorough and easily accessible KYC records in accordance with Italian AML regulations.
10-Year Retention Period: Another standard can be explained by Legislative Decree No. 231/2007, which requires that identity documents, customer due diligence (CDD) files, and account profiles be kept on file for a minimum of 10 years after the conclusion of the business relationship.
Audit-Ready Documentation: Upon request, authorities like the Bank of Italy (Banca d'Italia) and the FIU (Financial Intelligence Unit) must have access to transaction logs, customer correspondence, and verification data.
Compliance Importance: Regulatory penalties, such as fines of up to €5 million, may result from a failure to maintain or provide complete KYC records. Keeping organised, digital, and audit-friendly records is crucial for risk reduction and inspections.
KYC Regulations Across Sectors in Italy
Depending on the industry, Italy's KYC laws differ slightly. An outline of sector-specific responsibilities is provided below:
| Sector | KYC Requirements |
| Banks & Financial Institutions | Conduct customer due diligence (CDD), monitor high-risk clients (e.g., PEPs), and flag suspicious transactions. |
| VASPs (Crypto Providers) | Register with OAM (Organismo Agenti e Mediatori), enforce Travel Rule compliance, and validate identities. |
| Real Estate | Verify the identities of buyers and sellers, and confirm sources of funds for large transactions. |
| Lawyers / Notaries | Conduct KYC checks during company formation, high-value property purchases, or other transactions prone to AML risks. |
| Insurance | Verify the identity of policyholders, particularly for high-value policies, and ensure compliance with AML protocols. |
Know Your Business (KYB) in Italy: Legal Obligations and Compliance Overview
Know Your Business (KYB) practices are an essential component of Italy's anti-money laundering (AML) framework, especially for payment service providers, fintechs, financial institutions, and virtual asset service providers (VASPs). KYB procedures, which are mainly governed by Legislative Decree No. 231/2007 and in line with EU directives (AMLDs), are designed to maintain transparency and stop the improper use of legal entities for illegal activities.
What Is the Role of KYB in Italy?
Businesses must comply with Italian KYB requirements by:
- Identifying and confirming legal entities involved in financial or business relationships;
- Identify the people who own or control 25% or more of the entity, known as the Ultimate Beneficial Owners (UBOs);
- Verify the directors' and solicitors' identities;
- Comprehend the nature and goal of the business partnership;
- Evaluate the funding source and possible risks.
Strong corporate transparency regulations are enforced in Italy, such as the Registro dei Titolari Effettivi (UBO Register), which requires businesses to reveal their beneficial ownership structure. Account freezing, administrative fines, or heightened scrutiny during Bank of Italy or Unità di Informazione Finanziaria (UIF) audits could be the consequences of noncompliance.
How to Comply with KYC Laws in Italy
In order to comply with Italy's Know Your Customer (KYC) laws, one must follow certain regulatory frameworks designed to stop money laundering and the funding of illegal activity. The essential steps for guaranteeing compliance are delineated in the subsequent steps:
1. Understand Regulatory Requirements
Legislative Decree No. 231/2007, as amended, which incorporates EU Anti-Money Laundering Directives into Italian law, contains provisions that entities must become familiar with. This law covers the responsibilities for risk assessment, record-keeping, and customer due diligence.
2. Implement Robust Customer Due Diligence (CDD) Processes
Verification of the identities of clients, beneficial owners, and authorised representatives is mandatory for organisations.
3. Perform Risk Assessments
To reduce possible risks, high-risk cases require more thorough due diligence procedures. Companies must take into account variables like transaction type, geographic exposure, and business operations when assessing the risk profile of their clients.
4. Monitor Transactions and Report Any Questionable Activities
To identify odd or possibly unlawful financial activity, transactions must be continuously monitored. The Bank of Italy's Unit of Financial Information (UIF) must be notified of any suspicious transactions so that they can be looked into further.
5. Maintain Accurate Records
Businesses must keep customer information and transaction records for a minimum of ten years. This guarantees information access for regulatory audits or enquiries.
6. Provide Employee Training
Appropriate training initiatives must be put in place to guarantee that staff members are prepared to recognise AML risks, carry out due diligence, and successfully report suspicious activity.
Organisations doing business in Italy can comply with their KYC requirements and support the general objective of guaranteeing honesty and openness in financial and commercial dealings by taking these actions.
What are the penalties for non-compliance with KYC regulations in Italy?
Serious penalties may follow noncompliance with KYC obligations:
Administrative Fines: Depending on the extent of non-compliance, fines may amount to as much as €5 million.
Regulatory Sanctions: The Bank of Italy, CONSOB, or other authorities may impose limitations on an institution or cancel its operating licence.
Criminal Repercussions: Serious breaches connected to KYC or AML infractions may lead to criminal investigations against accountable parties.
Key KYC Compliance Challenges Faced by Businesses in Italy
Businesses throughout Italy still face a number of KYC compliance challenges in spite of advancements in regulatory frameworks and digital transformation. More than 60% of Italian businesses list KYC as one of their top three regulatory pain points, according to recent studies.
Complex Beneficial Ownership Verification
Accurate beneficial ownership establishment is still very difficult, especially in cross-border arrangements. The Bank of Italy reports that in 2024, unclear or insufficient beneficial ownership information was a factor in over 45% of flagged suspicious activity reports (SARs).
Cross-Border Onboarding for Clients Outside the EU
Language hurdles and disparate ID requirements continue to make it difficult to verify foreign clients, particularly those from outside the EU. According to a 2023 compliance survey, KYC friction caused 34% of Italian financial institutions to report delays or unsuccessful onboarding of non-EU clients.
Manual KYC Processes in SMEs
Over half of Italian SMEs still use manual or document-based KYC procedures, even though access to RegTech tools is expanding. In addition to being prone to human error, these antiquated workflows result in audit failures and compliance risks by increasing onboarding times by an average of 7–10 days.
How Sanction Scanner Supports KYC Compliance
In accordance with Decreto Legislativo 231/2007 and EU AML regulations, Sanction Scanner offers a robust suite of tools designed to satisfy Italy's changing KYC requirements. Our products assist regulated companies, fintechs, and financial institutions in adhering to European and Italian laws:
Real-Time Identity Verification
Instantly validate residency permits, passports, and Italian ID cards (Carta d'Identità) with AI-driven document authentication that is completely compliant with Bank of Italy digital onboarding standards.
PEP and Sanction List Screening
Identify Politically Exposed Persons (PEPs) and sanctioned parties in real time by automatically screening people and organisations against Italian, EU, UN, and international watchlists. UIF, MEF, and consolidated EU lists are covered.
Seamless API Integration
Sanction Scanner easily integrates with your core banking, CRM, or onboarding systems, enabling Italian companies to digitise KYC procedures without having to completely rebuild their infrastructure.
Ongoing Monitoring & Audit-Ready Reporting
Maintain ongoing adherence to Italian AML regulations by automatically tracking client profiles and producing reports that are easy for regulators to read and perfect for internal reviews and UIF audits.
FAQ's Blog Post
KYC in Italy stands for “Know Your Customer,” a process to verify customer identities and assess risk to prevent financial crime.
Yes, KYC is a legal requirement for financial institutions and other obliged entities under Italian and EU AML laws.
Banks, fintechs, insurance firms, notaries, accountants, and certain professionals must conduct KYC.
Obligations include customer identification, risk assessment, ongoing monitoring, and reporting of suspicious activities.
Yes, remote and digital KYC (e-KYC) is permitted, provided secure and compliant identity verification tools are used.
Italy aligns with EU AML directives, including the 5th and 6th AMLDs, incorporating them into national law via the Legislative Decree 231/2007.
Non-compliance can lead to fines, administrative sanctions, and in serious cases, criminal prosecution.
The Bank of Italy supervises financial institutions and ensures compliance with KYC and broader AML obligations.