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The Differences Between KYC and AML, and How They Relate

There are many different rules for businesses to negotiate when it comes to compliance. The diverse compliance terms, which might indicate different things, adds to the complexity.

Anti-money laundering, or AML, refers to the protocols that financial institutions and other organisations must adhere to in order to prevent criminals from depositing or transferring funds earned via unlawful activity. AML requirements, in particular, are intended to prevent terrorist funding and revenues from crimes such as human trafficking.

Know Your Customer, or KYC, refers to the steps taken by a firm to guarantee that its customers are who they say they are and do not constitute a danger to the organisation. Even though the terms AML and KYC are sometimes used interchangeably, KYC falls under the bigger umbrella term of AML.

​KYC And AML – What’s The Difference?

AML refers to any attempts to prevent money laundering, including preventing criminals from becoming clients and monitoring transactions for suspicious behaviour. Customer identification and screening, as well as ensuring you understand their risk to your organisation, are all part of KYC. In this approach, KYC compliance aids in the prevention of both money laundering and fraud.

KYC And Customer Due Diligence (CDD)

Although customer due diligence (CDD) is only one part of KYC requirements, the phrases are sometimes used interchangeably. The new client information programme is the first phase of KYC. During the onboarding process, you acquire information on the customer in this step.

 

The second phase is CDD, in which you verify the person’s identification to guarantee they are not impersonating someone else. This stage requires biometric identification to ensure that the individual is physically present. You also do a watchlist check to make sure they aren’t a politically exposed person (PEP) or aren’t on any sanctions lists.

 

A risk assessment is also included in the CDD to gauge the likelihood of their being involved in money laundering. For example, they can be deemed a high-risk customer if they live in a given nation and are opening a specific sort of account.

 

For high-risk consumers, KYC compliance online also incorporates enhanced due diligence services (EDD). Companies decide how to interact with these consumers during this period, generally by enforcing harsher regulations while monitoring their financial activities. The basic purpose of KYC is to determine whether or not to conduct business with your customers, as well as how to do so. KYC aids in the prevention of money laundering in this way. To simplify the experience for your consumers, the proper KYC solution should deliver these answers in real-time.

How Does A Typical KYC Process Work?

A typical KYC procedure involves the following steps, regardless of terminology:

 

Preventing fraud by verifying the customer’s identification.

Checking the customer against a list of forbidden items

evaluating the customer’s risk profile to see whether they’re a higher-risk customer

Continuous surveillance, including transaction surveillance, to ensure that their risk profile has not altered.

As stated in the following section, the KYC procedure has a lot of overlap with the AML compliance programme.

AML Compliance Programs

Criminals are frequently faced with a serious problem: deciding how to spend their ill-gotten earnings. AML laws, for example, compel firms to disclose when a consumer deposits substantial sums of money. As a result, thieves are continuously seeking new methods to enter the financial system with their filthy money in order to legalize or “clean” it.

 

To keep up with criminals, anti-money laundering regulations have changed. Compliance teams have had to examine and adapt their AML compliance plans and risk management strategies on a regular basis.

 

What Does A Typical AML Program Look Like?

A good AML compliance programme must possess several critical characteristics. A typical AML programme will have the following components:

 

During onboarding and throughout the client lifecycle, KYC is required.

Financial transactions are being monitored.

Suspicious activities should be reported to regulators.

Methodical recordkeeping that can withstand scrutiny

Employee policies and training to keep them up to date

When Are KYC And AML Necessary?

KYC and AML are necessary for every country on the planet. Terrorist finance, on the other hand, does not always end at a country’s boundaries.

KYC And AML In Financial Institutions & Other Industries

To avoid fraud, money laundering, and other financial crimes, KYC and AML compliance are essential. Regardless of your industry, allowing customers to move money might make you a target for money laundering. Whether you’re a bank, fintech, or marketplace, an effective compliance programme guarantees that you and your clients can do business with trust.

Finally, I Would say:

It is simple to incorporate our automated identity verification and anti-money laundering (AML) solutions into your onboarding and continuous monitoring procedures.

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