KYC and AML: understanding these complementary concepts
Apr 25, 2024
The rapid growth of the online economy has sparked an unprecedented need for effective mechanisms to fight identity fraud and illicit activities. Companies must now adhere to very strict international compliance rules for optimal customer knowledge (KYC) and use the right tools to combat money laundering (AML).
What is KYC?
Behind the acronym KYC (Know Your Customer) lies a simple definition: customer knowledge. In concrete terms, it involves meticulously verifying the identity of your customers to assess the risks of fraud, money laundering, and terrorist financing.
The goal is to ensure that they do not violate current regulations in order to protect yourself against identity theft, as well as corruption. With the blatant emergence of customer digitalization, as well as the widespread use of new technologies, international institutions have established a strict legal framework to guarantee the integrity of your customers.
KYC thus allows you to meet a crucial imperative through identity checks and financial transaction inspections, so as not to become complicit in financial crime.
What is AML?
Anti Money Laundering (AML) is a term used to target money laundering. This notion refers to a set of procedures historically intended for banks and financial institutions, but which has expanded to other sectors in order to prevent potential transfers of funds from dubious and illegal activities. AML allows organizations to comply with regulations and to point out suspicious activities to authorities. These institutions thus ensure a proactive approach to combating money laundering by following normative compliance processes.
Therefore, AML enables:
Combating money laundering and terrorism financing
Reducing the adverse effects of criminal economic activity
Promoting the integrity and stability of financial markets
What is the connection between KYC and AML?
While KYC and AML differ due to their distinct compliance framework, they are perfectly compatible. Each benefits from different processes and objectives, but efficient AML policy requires reliable KYC.
Why? Simply because if you are unable to establish the true identity of your customers and their source of funds, no financial crime can be detected. All your preventive efforts deployed upstream will then be in vain. These two concepts are intertwined in a logic of active combating money laundering by monitoring suspicious transactions to detect illegal activities.
KYC refers to the identification and screening of your potential customers. It allows you to detect the risks these individuals may pose to your business. AML, on the other hand, focuses on detecting and preventing financial attacks. KYC can thus be considered as the first step in AML compliance. However, it is only the starting point of a vast program to combat money laundering.
To meet the requirements of identity verification standards within the framework of KYC and AML with precision and reliability, facial biometrics is an effective solution. It ensures maximum security for your users through cutting-edge technology to combat identity fraud. Discover in this article how to choose your facial biometrics solution.