AML vs KYC: What is the Difference?
As you learn more and more about compliance, there are two terms you’ll come across the most frequently: KYC and AML. What do these technical terms really mean, and how are they related to one another? What are the differences between KYC vs AML? These are just a few of the many questions we’ll answer in this in-depth guide. By the end, you’ll feel confident in your next steps toward compliance and peace of mind.
AML – or Anti Money Laundering – is a set of regulations designed to prohibit or track criminal enterprises from using financial services. And KYC – or Know Your Customer – falls under AML regulations. Think of KYC solutions as one means of complying with AML regulations. We’ll discuss this more in-depth in just a few moments. And, you’ll also learn what you can do to keep your entity compliant with AML Regulations. We’ll let you in on the most simple, secure, and affordable way to protect yourself, your business, and your customers – all that once. First, though, we’re going to fully unpack the difference between AML vs KYC – let’s take a look.
AML vs KYC: What is the Difference Between These Terms?
As we mentioned above, both of these terms have to do with compliance. However, the scope of each and its requirements differ vastly. KYC is just one of the many elements of an AML compliance process you’ll employ. To help you gain a better understanding of each, we’ll define them below:
What is AML?
AML – or Anti Money Laundering – is a set of laws and regulations designed to prohibit criminal enterprises from using financial services. These regulations were put in place to track and prevent terrorist financing, as well as other illegal activities like money laundering, drug trafficking, and more. Let’s go deeper.
The Bank Secrecy Act (BSA) of 1970 spawned the first set of regulations related to AML. These regulations required financial institutions to maintain records of cash transactions and report any suspicious activity. In 2001, after the terrorist attacks on September 11th, these regulations became more stringent. The USA PATRIOT Act was designed in part to prevent terrorist financing by freezing assets, expanding surveillance, and increasing information sharing between financial institutions and the government.
In 2003, the Financial Action Task Force (FATF) – an international organization that develops policies to combat money laundering – published a set of Forty Recommendations for AML compliance. And in 2012, they updated these recommendations in line with changing technologies and trends.
All members of the FATF – which includes most so-called developed nations – are required to implement these recommendations. Many have also enacted their own domestic laws and regulations in addition to the FATF recommendations.
What is KYC?
Now that we have a clear understanding of AML, let’s take a look at KYC. As we mentioned before, KYC falls under AML regulations. And, it refers to the process of identifying and verifying your customer’s identity.
This process begins with collecting data about your customer – like their name, address, date of birth, and more. Once you have this information, you’ll need to verify that it’s accurate and up-to-date. The best way to do this is by using an independent source, like a government-issued ID.
Once you have this data and you’re confident that it’s accurate, you’ll need to keep it on file. This is so you can refer back to it if there are any changes or discrepancies down the road.
It’s important to note that KYC compliance is an ongoing process – not a one-time event. You’ll need to periodically update and re-verify your customer’s information to ensure that it’s still accurate.
Now that we’ve explained what each of these acronyms stands for and encompasses, let’s compare them to each other so you can start to see how they’re interrelated.
Key Differences Between KYC and AML
The main difference between AML and KYC is their scope. AML compliance includes a broad range of regulations designed to prevent criminal activity. KYC, on the other hand, is just one element of an AML compliance program – albeit an important one.
Another key difference is that KYC only applies to customers – not employees or vendors. AML can and does go beyond that group of players. So, if you’re conducting a KYC review, you’ll only be collecting and verifying information about your customers.
Finally, it’s important to note that while both of these acronyms are related to compliance, they have different penalties associated with non-compliance. Wiolating AML regulations can result in hefty fines or even criminal charges, while failing to comply with KYC procedures may result in civil penalties.
Despite these differences, it’s important to remember that KYC and AML compliance are two sides of the same coin. They’re both essential for preventing criminal activity and protecting your business. With that said, let’s talk about how businesses can develop a bulletproof AML compliance program – that features a solid, dependable KYC process.
How to Create a Bulletproof AML Compliance Plan That Includes a Dependable KYC Process
The best way to develop a compliance program is to work with an experienced provider.
Developing these processes in-house can feel like a time suck, that detracts from the most important elements of your business. And, doing it all yourself makes it more likely you will leave holes in your procedures that open up the door for AML violations – leading in turn to huge fines, and in some cases, criminal charges. All this said, working with an outside firm that is expert in these areas can help you navigate the ever-changing landscape of regulations and ensure that you’re always up-to-date.
When it comes to KYC, look for a provider that offers an automated solution. This will make it easy for you to collect and verify customer data – without sacrificing security. It’s also important to find a provider that offers flexible authentication methods. This way, you can choose the method that makes the most sense for your business – whether that’s biometric authentication, one-time passcodes, or something else entirely. Finally, make sure that your provider offers robust data protection measures. This is essential for keeping sensitive customer data safe in the event of a breach.
FortifID Helps You Stay AML & KYC Compliant When Onboarding & Authenticating Customers
FortifID is a digital onboarding and authentication solution that helps businesses stay compliant with KYC and AML regulations. With both AML screening and KYC verification, you can enjoy peace of mind knowing you’re doing your part. Our software is designed to streamline the customer onboarding process – making it quick and easy for you to collect the data you need while maintaining a high level of security. Plus, it offers robust fraud detection capabilities – so you can be sure that you’re always compliant.
Plus, the solution we offer grants the greatest degree of protection in the event of a breach – because you’ll never actually store customer data. Our software sends algorithms to the data and returns to the system with the insights. Data stays put – so even if a hacker infiltrates your system, there’s nothing there for them to steal.
The Bottom Line: AML vs KYC – What’s the Difference and What Do Businesses Need to Know?
In summary, AML is a broad range of regulations designed to prevent criminal activity, while KYC is just one element of an AML compliance program. Despite their differences, both sets of requirements are essential for preventing criminal activity and protecting your business from penalties and fines.
When it comes to developing a compliance program, it’s best to work with an experienced provider with a dependable solution like FortifID. Reach out today to learn more about how we can help you stay compliant while protecting sensitive customer data!