Skip to main content

KYC and AML are by far the most frequently used terms when discussing compliance. Even though this is the case, many individuals still get the definitions mixed up. What exactly do KYC and AML mean, and how do they differ from one another?

What is Know Your Customer (KYC)?

The Know Your Consumer (KYC) procedure entails gathering data on the customer and confirming their identification. Each country has a different set of requirements for identifying information. Businesses often require at least the following information: Name, birthdate, and address.  

Customers supply businesses with specific credentials, such as their ID, throughout the verification process. Businesses are responsible for making sure that any provided documents are authentic and that any customers are who they claim to be. 

What is Anti-Money Laundering (AML)?

Financial institutions and other regulated companies implement anti-money laundering (AML) policies and practices to stop financial crimes. This pertains to regulated businesses and includes investigating clients and their transactions, maintaining records, alerting AML authorities to any suspicion of money laundering, etc. 

What is the difference between the two?

AML compliance programs typically entail a wide range of actions that are all related to AML.  

The requirements for AML programs can differ between jurisdictions. However, they typically involve the following:  

Customer due diligence (CDD), enhanced due diligence (EDD), risk analysis, anti-money-laundering (AML) policies and internal controls, ongoing surveillance, suspicious activity and transaction reports, appointment of an AML compliance officer, and employee training in AML.  

During the CDD process, businesses must identify clients or run KYC checks. At this point, businesses must also create client risk profiles.  

Where and when are KYC and AML required?

AML regulations require all regulated organizations to comply with AML requirements, which includes KYC. Different jurisdictions have different restrictions on regulated entities. Typically, these comprise of:  

  • Financial institutions, credit institutions, insurance firms, payment institutions using e-money;  
  • Numerous situations covered by national AML rules call for KYC/CDD. Typically, they involve, but are not limited to, situations where a client: Establishes a first-time engagement with a company (for instance, by opening an account at a bank or cryptocurrency exchange platform); performs a transaction in excess of the limits specified by AML laws and creates a possibility of money laundering or financing terrorism. 

How automation improves KYC/AML compliance

Businesses can use either manual KYC/AML checks, which are carried out by a human compliance staff, or automated checks. By raising pass rates, automated KYC/AML and sanctions screening solutions lower the risk of losing candidates. 

Automated KYC checks

Businesses can collect client identity information through online identity verification by automating KYC.  

The user chooses the type of ID document they want to use, and uploads images of the document, and the KYC platform screens and verifies it.  

The KYC platform confirms the user’s identity by looking at a photo of them holding the document.  

Automated KYC procedures also include biometric verifications, such as the facial recognition step that verifies the client’s identification. 

Automated AML and sanctions screening

The effectiveness and cost-effectiveness of automated AML and sanctions screening technologies are both favourable. By obtaining accurate information from credible sources, such as PEP lists, sanctions lists, watchlists, and adverse media lists, they decrease manual labour and safeguard enterprises against criminality.  

Best practices for KYC/AML in financial services

The marketplaces for banking, technology, and cryptocurrencies are the most susceptible to fraud and money laundering. Successful KYC/AML procedures can reduce this by:  

  • reducing threats to the law and reputation. Businesses can protect their reputation and avoid costly fines and other penalties from authorities by adhering to AML requirements.  
  • recognizing fraudsters in the financial services industry, fraudsters employ a number of complex methods, such as money mulling, in addition to using phone identification. Businesses can stop even the most inventive fraud efforts by making sure that only verified individuals may become clients.  
  • increasing consumer satisfaction. Users do not have to pass additional checks when firms improve their KYC/AML flows in accordance with applicant risk profiles. Drop-offs are decreased, and the user experience is enhanced. 

FACEKI enables you to incorporate automated identity verification and anti-money laundering (AML) solutions into the onboarding processes. Contact us for a demo today!