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KYC and AML, Know Your Customer and Anti-Money Laundering

What is Anti-Money Laundering (AML)?

Anti-Money Laundering system refers to a set of legal laws, policies and procedures to detect, monitor, scrutinize and report suspicious banking transactions, thereby combating and preventing money laundering and terrorist financing activities. It helps in ensuring compliance and managing customer data.

Know what’s KYC and its functions:

KYC stands for “Know Your Customer”. KYC is a small but crucial part of the AML program and helps in combating the financing of terrorism (CFT). KYC is the process of acquiring contextual information from structured or nonstructured data in the form of identity proof, residential or office address, photo and other such details to know who their customers are. KYC procedures are a crucial function to assess customer risks and determine any involvement in any fraudulent activities and comply with AML laws. It includes identity resolution, regulatory reporting, risk score assessing & management, and, customer lifecycle management.
KYC is popularly also known as the Customer Identification Program. Even after the account is approved in the customer lifecycle the customer’s transactional activities are monitored and shared on KYC.


Main steps of KYC Compliance:
  • Data integration – AML platform enables data integration of customers’ historic transaction data and contextual information across all interaction channels. In other words, all details of customers are collected and stored in KYC Database.
  • Identity Verification – The details provided by the customer are verified for authenticity and appropriacy.
  • Validation – Checking the data through trusted sources and government regulations to examine that customers are not politically exposed persons (PEP) and are not showing on the Sanction (OFAC) Lists.
  • Risk Scoring – KYC helps to find inconsistencies and anomalies in customer risk scores across all processes and databases. Customer risks are evaluated and assessed by performing background checks. The real-time risk scoring process helps in analyzing customer historical transactions in various segments like professional, enterprises, demographics, etc., and then assigned a risk score. A statistical structure is demonstrated to analyze customer risk scorings used in the AML platform.
  • Account Approved – Once an account is validated, the customer account is approved and they are welcomed on-board.

What is CDD?

Customer Due Diligence (CDD) is a subset of KYC which performs background checks by verifying the customer’s identity, assessing risks before opening customers account which helps in preventing identity fraud and money laundering activities.

What’s the difference between AML and KYC?

AML is the whole framework that prevents money laundering activities and KYC is a process and small part of the AML framework in which customers’ data and identity are verified before opening customers’ accounts with banks.

Why are KYC and AML so important?

AML and KYC matter to all financial organizations and ensures the services are not misused or compromised; hence banks and businesses are becoming big supporters of KYC. It also enables banks to understand their customers and their transactions to serve them efficiently and manage risks sensibly. KYC plays an important role in preventing and mitigating frauds and avoiding association with money laundering activities and other illegitimate funds.