KYC AML Compliance

AML and KYC are by far the most often used words when discussing compliance. Even so, plenty of individuals get their definitions mixed up. What exactly do KYC and AML imply then? And how do KYC and AML differ from one another? In this post, we go in-depth on KYC and AML, their compliance implications, and how they may support the creation of user flows that are both secure and slick.

What is Know Your Customer (KYC)?

The Know Your Customer (KYC) procedure entails gathering data on the consumer and confirming their identity. Each jurisdiction has a different set of requirements for identifying information. Businesses often need some customer information Name, birthdate, and address.

Customers supply companies with certain credentials, such as their ID, throughout the verification process. 

Businesses are responsible for verifying that the IDs supplied are authentic and that consumers 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 practises to stop financial crimes. This pertains to regulated enterprises and includes investigating clients and their transactions, maintaining records, alerting AML authorities to any suspicion of money laundering, etc.

According to the AML laws of the nation or region in which they conduct business, regulated companies are required to create their AML safeguards. Here are a few instances:

The Payment Service Act (PSA) in Singapore, the UK’s Money Laundering, Terrorist Financing, and Transfer of Funds Regulations, and Germany’s Anti-Money Laundering Act.

Additionally, national agencies provide recommendations to assist enterprises in understanding their AML responsibilities. While this is going on, the Financial Action Task Force (FATF) establishes international AML guidelines that are subsequently implemented by various countries.

What is the difference between KYC and AML?

AML compliance programmes often entail a wide variety of actions that are all related to AML. Since KYC is only one part of this programme, AML also applies to it.

The criteria for AML programmes might differ between jurisdictions. However, they often entail 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, the appointment of an AML compliance officer, and employee training in AML.

Businesses must identify and validate customers—or perform KYC checks—during the CDD process. Businesses must also establish client risk profiles at this point.

Where and when are KYC and AML required?

According to AML/CFT legislation, regulated firms must comply with AML requirements, which includes KYC. Across countries, regulated entities’ purview varies. Financial institutions, credit institutions, insurance firms, e-money institutions, payment institutions, virtual asset service providers (VASPs), gambling operators, mobile money lenders, etc. are typically included in this category.

Many nations, including the US, Canada, UK, France, Singapore, Japan, South Korea, India, and others, have AML legislation that applies to VASPs. VASPs are either outright prohibited or just partially regulated in certain other nations.

In a variety of situations that are outlined under national AML legislation, KYC/CDD is necessary. They typically involve, but are not limited to, situations in which the client:

• Initially establishes contact with a company (by, for instance, creating a bank account or cryptocurrency trading platform);
• Carries out a transaction that exceeds the threshold set forth under AML laws; 
• Raises questions about possible money laundering or financing for terrorism.

How automation improves KYC/AML compliance

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

Automated KYC checks

Businesses may collect client identification information through online identity verification by automating KYC. There are typically 5 phases in this procedure, which can take place on a mobile or online platform:

The user chooses the type of ID document they want to use, 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.

Biometric verifications may also be a part of automated KYC processes. One of them is referred to as liveness, and it is a face authentication method that confirms if the client is a genuine person. Another one is called Face Match, and it confirms whether a face matches the ID given and the government database referred to.

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 crime.

Businesses can create verification flows in accordance with AML/KYC standards in a certain jurisdiction by using automated AML solutions.

Best practices for KYC/AML in banking, crypto, and fintech

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 may protect their image and avoid costly fines and other penalties from authorities by adhering to AML requirements.
• Detecting Fraudsters. In the financial services industry, fraudsters employ a number of complex methods, such as money muling, in addition to using phoney identification. Businesses can stop even the most inventive fraud efforts by making sure that only authenticated individuals may become clients.
• Elevating Customer Experiences. Users do not have to pass additional checks when firms optimise their KYC/AML flows in accordance with applicant risk profiles. Drop-offs are decreased, and the user experience is enhanced.

FAQs

What is AML and KYC?

The Know Your Customer (KYC) procedure involves gathering data on a consumer and confirming their identification. Financial institutions and other regulated companies implement a variety of procedures known as anti-money laundering (AML) to thwart financial crimes. KYC is a part of AML regulations.

Are AML and KYC the same?

AML and KYC are distinct concepts. AML includes KYC since it is but one part of an AML programme.

What is AML & KYC compliance?

A regulated entity is in compliance with AML legislation when it complies with its obligations. The standards for customer identification and verification are referred to as KYC compliance.

What is an AML policy?

An AML policy is a series of internal rules and measures for preventing money laundering and terrorist financing.

What are KYC & AML checks?

A KYC check confirms that the customer is who they claim to be. Customers are subjected to sanctions, PEP lists, and watch lists during an AML check.

How do businesses become KYC/AML compliant?

AML compliance programmes must be created and effectively implemented by businesses. These programmes must include customer due diligence (CDD) and enhanced due diligence (EDD) processes, risk analysis, AML policies and internal controls, ongoing monitoring, suspicious activity and transaction reporting, and more.

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