What is the difference between KYC and AML?

There is a lot of confusion about the difference between KYC and AML. Some people use the terms interchangeably, but they are actually two different processes. With the ever-changing compliance landscape, it’s important to stay up-to-date on the latest regulatory requirements. As a financial institution, you are required to comply with both KYC AML regulations. But what exactly is the difference between these two compliance requirements? KYC, or “Know Your Customer,” is the process of verifying the identity of a customer and understanding the nature of their business relationship with a company.

AML, or “Anti-Money Laundering,” is the process of preventing money laundering and terrorist financing. That is why these operations are necessary also for crypto platforms, gambling institutions and sports betting. All these activities involve transactions between different users and businesses, so there should be a record of the relevant data. In this blog post, we will explore the main differences between KYC and AML in more detail.

KYC basics

KYC is primarily focused on identifying customers and understanding their financial activities. In order to do this, financial institutions must collect certain information about their customers. This includes things like name, address, date of birth, Social Security number and other ID card information.

Financial institutions may also require additional documentation, such as a driver’s license or passport, to verify the customer’s identity. Once the customer’s identity has been verified, the financial institution can then begin to understand their financial activities. This may involve looking at things like account balances, transaction history, and credit reports.

AML basics

AML, on the other hand, is focused on preventing money laundering and terrorist financing. Money laundering is the process of disguising illegal funds so that they appear to be legitimate. Terrorist financing is the process of providing funds to terrorist organizations. To prevent these activities, financial institutions must implement AML compliance programs.

These programs typically involve things like customer due diligence, transaction monitoring, and suspicious activity reporting. By implementing these programs, financial institutions can help to prevent money laundering and terrorist financing. If they see any red flags, they are required to report it to the relevant authorities.

Main differences

So, what is the difference between KYC and AML? KYC is focused on identifying customers and understanding their financial activities. AML is focused on preventing money laundering and terrorist financing. In essence, both KYC and AML compliance are important for preventing money laundering. However, AML compliance measures are more comprehensive and often require financial institutions to invest in more sophisticated technology, like transaction monitoring software.

Transaction monitoring software is designed to flag suspicious activity by analyzing transactions for patterns that may indicate money laundering. For example, it can flag frequent or large transfers of funds, transfers to known money laundering hotspots, or transfers that are out of character for a particular client. Technology like transaction monitoring software is playing an increasingly important role in the fight against money laundering.

The relevance of these financial regulations

As financial institutions face more pressure to comply with AML regulations, we can expect to see more investment in this type of technology. By understanding these differences, you can ensure that your financial institution is compliant with both KYC and AML regulations.

If you have any further questions about KYC or AML, please contact Qoobiss. We would be happy to help!