In regulated industries, Know Your Customer (KYC) and Anti-Money Laundering (AML) are terms that often get conflated, but they serve different, albeit complementary, functions in combating financial crime. Recognising the nuances between these two is crucial for ensuring compliance, protecting reputational integrity, and strengthening overall fraud prevention efforts. London-based RegTech FullCircl opens up on the key differences and spotlights why they matter.
KYC refers specifically to the verification of a customer’s identity. It involves collecting and validating personally identifiable information such as name, address, and date of birth, as well as official identification documents like passports or driving licences.
It is typically initiated during the onboarding phase but requires continual oversight to monitor for suspicious behaviour.
In corporate KYC, or Know Your Business (KYB), the focus shifts to evaluating financial data, beneficial ownership, and potential risk when engaging with other businesses. Effective KYC helps mitigate risks like identity theft and fraud, and provides a reliable foundation for AML initiatives.
AML, on the other hand, is broader in scope. It encompasses procedures, regulations, and frameworks that seek to prevent the laundering of money and financing of terrorism.
AML processes include customer screening at onboarding, transaction monitoring, and ongoing assessments to detect high-risk behaviours.
These checks extend to identifying Politically Exposed Persons (PEPs), sanctions exposure, and negative media coverage. The AML process incorporates Customer Due Diligence (CDD), Enhanced Due Diligence (EDD) for high-risk profiles, and continuous oversight.
Although KYC is a distinct process, it is essentially a subset of AML. It represents the first layer of defence, allowing firms to collect the necessary data to feed into broader AML checks.
Once KYC is complete, AML systems take over for deeper analysis—checking sanctions lists, adverse media, and monitoring transactions. Continuous updates and re-screening ensure that any shifts in a customer’s risk profile are promptly identified and addressed.
The implementation of KYC and AML also varies. KYC typically requires full name, address, date of birth, and government-issued ID, often drawing on Credit Reference Agency data.
AML may begin with just a name, but benefits from additional data to reduce false positives.
Data sources for AML include sanctions lists, watchlists, and media aggregators. Many firms are now adopting RegTech solutions and data aggregators, which offer access to a broad array of data via a single integration point—streamlining compliance while improving customer experience.
One of the key challenges for firms operating globally is navigating cross-jurisdictional regulation.
Major regulatory frameworks include the European Union’s 6th Anti-Money Laundering Directive (6AMLD), the U.S. Bank Secrecy Act (BSA), the Patriot Act, and the Financial Action Task Force (FATF) recommendations.
Each brings different nuances to compliance, making it critical for organisations to understand local and global requirements alike.
The risks addressed by KYC and AML also differ. KYC primarily mitigates identity theft, fraud, and operational inefficiencies in onboarding.
AML tackles broader threats like money laundering, terrorist financing, and reputational damage from doing business with sanctioned or high-risk entities. When implemented cohesively, these systems enhance regulatory compliance and reduce vulnerability to financial crime.
As scrutiny from regulators and customers grows, technology continues to play a pivotal role. Firms like FullCircl have emerged as leaders in providing real-time KYC and AML software. By offering data-agnostic, customisable platforms, they allow regulated entities to integrate essential data sources and automate processes—ensuring compliance while improving the customer journey.
Ultimately, distinguishing and harmonising KYC and AML practices helps businesses build robust compliance frameworks, improve operational efficiency, and maintain trust in an increasingly complex regulatory environment.
Read the full blog from FullCircl here.
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