AML, also known as anti-money laundering refers to the steps that financial institutions and other business have to take to deter criminals from transferring or depositing money obtained through illegal means. AML regulations, particularly are designed to identify and stop the proceeds from criminal acts such as human trafficking, terrorist financing and tax evasion, corruption in the public sector and more.
KYC, also known as the acronym, Know Your Customer is a reference to the methods a company uses to verify the customers' identities are who they claim be and are not an risk to the business. The KYC processes check the identity documents like drivers licenses, passports and more. to verify the identity of a client elements like name address, address, age nationality, etc.
What's the main difference in KYC AML and KYC?
Although both terms AML or KYC are often utilized to refer to the same thing, KYC falls under the broad umbrella of AML in essence, KYC is a component of AML.
While AML efforts are aimed at preventing money laundering, for example stopping criminals from becoming customers, and securing transactions for suspicious activities, KYC is used to identify customers and verification, so that businesses can easily identify individual customer's risks for their business. This is why KYC compliance is among the best ways to avoid fraud and money laundering.
The understanding of the AML program
It's always a struggle for criminals to make use of their illicit profits since funds transactions could be exposed. Therefore criminals always seek new methods of depositing their illicit money into a legalized financial system, which helps to legitimize their illicit money. AML compliance rules are imposed on companies in order that they aid in deterring and stopping these advancements of criminals. For instance, AML policies require businesses to inform customers whenever a customer makes large deposits of cash , or to examine and update their AML compliance plans and risk management strategy frequently.
An common AML program will comprise the following elements:
- The company must follow strict KYC procedures are required during the onboarding process and throughout the life cycle of the customer.
- Continuous monitoring of customers' financial transactions.
- Report suspicious activity promptly to the regulators.
- Record keeping procedures to allow transparent auditing.
- Training and policies for employees to ensure they are current.
Understanding the KYC program
The KYC process has a lot of overlap with AML compliance programs. AML Compliance programs. In various nations, KYC programs may include different terminologies like Customer Due Diligence (CDD) and politically Exposed Person (PEP) and enhanced due Diligence. Whatever terms are employed in a typical KYC program will include:
- Verifying the identity of the customer.
- Customer screening against prohibited lists
- Assessing the risk profile of the customer to determine if they're at risk.
- Continuous monitoring, that includes transaction monitoring, assures that the risk profile of a client hasn't changed.