AML regulations are mandatory to follow by all businesses around the globe to avoid financial loss. Especially financial institutions should need to comply with AML standards to combat money laundering. If we talk about the terms KYC and AML, these are different from one another but people do not know the difference between them and use them as the same terms. The increasing online frauds are putting pressure on online businesses to take precautionary measures and meet security regulations to stand in the market.
Due to poor identity verification services and ignoring AML standards, financial institutes lose billions every year and the number is still increasing. The United Kingdom lost approximately 1.28 billion pounds in 2019 only in payment card frauds.
Similarly, a massive amount of money is laundered every year due to substandard AML compliance by businesses. Online transaction frauds, credit card frauds, and hefty AML fines compelled businesses to incorporate robust ID verification solutions and meet AML standards. Online service providers, especially financial organizations such as banks, insurance companies, should need to maintain AML/KYC regulations to avoid financial fraud. Let’s have a look at how KYC and AML are different from one another.
KYC and AML Difference
AML is a broader term that includes several regulatory processes that organizations need to follow. On the other hand, KYC is a part of AML that is used to confirm the identity of the end-users. The primary purpose of knowing your customer checks is to keep bad actors at bay from organizations by verifying their identity. While the primary purpose of AML regulations is to avoid businesses from financial loss by preventing money laundering and other financial frauds. Although these terms are slightly different from one another but crucial for online businesses to prevent money laundering and other financial crimes. Let’s elaborate KYC/AML one by one.
Know Your Customer
KYC is the process of authenticating the identity of the customers before onboarding by incorporating different ID verification solutions. It is one of the requirements for businesses to meet security regulations. It helps businesses to monitor the ongoing activities of their customers to know any suspicious activity. Customers just need to give personal information to the businesses such as name, ID card, contact number, etc and the system verifies their identity within seconds without the need for visiting physically somewhere for ID verification. It can be done through several AI-powered solutions such as face recognition, document, address, or consent verification in real-time.
Customer Due Diligence (CDD)
Whenever a company establishes a business link with a customer or has a doubt about any person, it runs customer due diligence to perform a risk assessment to confirm the identity. It ensures the legitimacy of the onboarded person to avoid any risk of online fraud. CDD AML consists of several steps to perform that includes:
Customer Identification
In this step, firms confirm the identity of their end-users using different means.
Beneficial Ownership
The businesses should know the ultimate beneficial ownership to which they are joining hands. It helps businesses to establish a good B2B relationship.
Business Relationship
Both entities should know the type and nature of business before joining hands.
Enhanced Due Diligence (EDD)
Enhanced due diligence is performed whenever a customer is a politically exposed person or having a higher risk of money laundering. It takes additional ID documents of the customers, authenticates the source of income of the customer, determines the purpose of transactions, and performs ongoing KYC checks to avoid any financial loss.
Anti-money Laundering
It aims to provide businesses robust security measures to avoid financial crimes and money laundering by making stringent rules and regulations. It helps businesses to reduce money laundering and online financial frauds by providing them AML regulations. It finds out suspicious transactions happening in the system. AML screening helps businesses to keep cyber criminals away from them by checking their records against global watchlists, sanctions, and Pep’s lists. By complying with AML regulations, businesses prevent money launderers and fraudsters from committing fraudulent activities.
Wrapping It Up
KYC and AML regulations facilitate businesses a lot in this era of online frauds where money laundering activities are at their peak. It assists businesses to perform robust KYC checks to onboard only legitimate customers into their systems. AML KYC regulations are used by various financial institutes and online businesses to deter financial crimes and to provide their customers a risk-free service. It also helps them to meet security regulations guided by FATF and other financial regulatory authorities to avoid massive penalties.
