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AML/KYC automation
Nov 26, 2021
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How are AML and KYC different?

BONUS: 4 keys to take into account in the AML / KYC verification processes

AML and KYC are two concepts that usually go together and are often used interchangeably and confused. Although they are interconnected, there are clear differences, we will tell you which ones:

AML vs. KYC, are they the same?

No, they are not.

  • AML (Anti-money laundering) encompasses the regulatory framework used to prevent money laundering and financial crimes. It is a broad regulatory framework, which overcomes countries. According to these regulations, companies have to implement certain procedures and requirements, adapted to their commercial activity, that allow them to manage and understand the potential risks associated with their potential clients.
  • KYC (Know Your Customer) defines the customer verification practices that companies carry out before entering into a business relationship. It is process to verify the identity of a new customer and it serves to ensure that their intentions are legitimate.

How are AML and KYC related?

The confusion is due to the fact that KYC is one of the practices used when implementing AML protocols for the prevention of fraudulent activities. AML is a broad concept that includes tools and processes beyond KYC. On the other hand, KYC is inseparable from AML.

We could say that the AML encompasses the KYC because it is a broader regulatory framework; while KYC is a more specific term that defines a specific process or action. However, it is important to keep in mind that the AML and KYC protocols feed back and strengthen each other.

While AML protocols cover:

  • KYC Verifications: Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD).
  • Risk-Based AML Practices.
  • Continuous Risk Assessment and Monitoring.
  • Personnel training programs for compliance with anti-money laundering regulations.
  • Internal controls and internal audits.

KYC focuses on the client’s identity verification process to better understand their financial transactions through:

  • Customer Due Diligence (CDD). It is the basic part of the KYC in which the customer data. It involves the confirmation of personal data, such as identity document or address.
  • Enhanced due diligence (EDD) involves a more complex assessment, and is normally applied to high-risk clients identified during CDD (individuals with a history or potentially risky due to their involvement in certain activities). The EDD includes the verification of information about the beneficial owner (UBO) of a company and the politically exposed persons (PEP). Transaction monitoring is also part of this verification.

Why are the AML and KYC processes important?

Both, KYC processes and AML framework, help prevent criminals and scammers from using transactions to defraud. These concepts encompass crucial procedures and regulations to assess risks that financial fraud and money laundering may represent.

The most effective way to know and understand the purposes of a person is by understanding their personal information and the context of it (what type of operations they carry out, what is the nature of their activity, where do they spend their money, etc.). Knowing customers allows companies to manage risks based on that. And, of course, improve their services.

As these types of circumstances are not static (people’s lives and their environment change), the KYC process must be understood as a dynamic verification, which must be carried out throughout the commercial relationship with the objective to continue to minimize risks and ensure that customer information is maintained.

These measures act as a barrier to prevent individuals and entities from hiding sources of illicit income.


4 points to consider for the AML / KYC verification processes

In businesses that are related to credit cards, insurance policies or, in general, any company that offers financial services, AML / KYC policies can be a great nuisance. But do you know that…?

  • With digital and automated systems, AML / KYC is easier to use and implement in business.
  • The identity verification implemented in the AML / KYC regulations can be a great help to build relationships with users.
  • The automatic processes and managed by specialized software are capable of keeping records online and updated.
  • The use of identity verification in automatic systems reduces the risk of avoiding errors or failures.

Why should you automate the AML / KYC verification process for your business?

With the integration of more advanced technological tools, companies can automate AML and KYC processes, better managing each specific case and saving a great deal of time or effort.

3 reasons to automate the AML and KYC processes:

  • Handle more data: The AML and KYC verification processes can be very expensive because large amounts of information are managed every minute. Therefore, task automation enables more user data to be handled through specialized software.
  • Speed ​​and simplicity: Automation for AML regulations and the KYC identity verification process will significantly improve speed, since dozens of clients can be managed in a matter of seconds.
  • Automatic maintenance: Constant monitoring of AML related data and detection measures applied to possible calculated fraud impossible without automated systems.

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