Know the difference between KYC and AML? Find out here
In the world of compliance, a hot topic nowadays with increasingly strict regulations appearing, KYC and AML are two very important processes that are worth understanding, especially if you are interested or engaged in the finance or legal world. The two processes are not very difficult concepts to grasp, however, it is worth understanding what role each of them distinctly fulfill, and how and why they play such a distinct role today.
The ‘know your customer’ (KYC) process tends to take place when you try to open a new bank account, apply for a new savings account or invest your money into a brand new fund or investment product. Most people do not realise that, when they supply identification such as their name, address and date of birth, this is in order for institutions/companies, to be able to check your information and verify you are who you say you are.
It is a requirement for those parties who are dealing with customers during the opening and maintaining of an financial account. These rules are in place to protect both the dealer and the customer to ensure each side is handled fairly.
Although an individual may have to supply identity verification such as a passport or proof of where you live, all the checking and processing of records is pretty much done behind the scenes. Essentially, KYC checks take place in order to verify that X who is claiming to be X, and trying to open a new account, is actually X.
Meanwhile, Anti-Money Laundering (AML) checks, a similar due diligence process, exist in order to stop the practice of money laundering, which is typically the act of concealing or altering the real source of large amounts of money received from illegal activity, such as drug trafficking or terrorist activity. With stricter laws coming into force to prevent individuals from getting away with money laundering due to ever-increasing financial crime activity, the AML process will usually involve checking your financial records/transactions, in order to monitor where exactly money is coming from and going to.
The KYC and AML processes are often mistakenly put under one umbrella but they ultimately serve a different purpose. Both processes are vital in the combat against financial crime and to strive towards a safer, fairer financial world and ensure transparency.
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