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Guide to KYC and AML: Know Your Customer & Anti-Money Laundering Checks
Customer Due Diligence
Identity Verification

Guide to KYC and AML: Know Your Customer & Anti-Money Laundering Checks

What are Know Your Customer (KYC) and Anti-Money Laundering (AML) checks? KYC and AML checks are processes in place to safeguard businesses.

Know Your Customer (KYC) and Anti-Money Laundering (AML) are processes in the Customer Due Diligence (CDD) framework to help regulated businesses identify customers at the point of onboarding and prevent illicit activities from taking place within a business.

Money laundering costs the UK alone more than £100bn a year. The need for a highly intelligent AML system whilst offering instant verification to align with rising customer expectations is one of the biggest challenges for compliance teams in 2024.

AML, KYC, CDD are all interconnected terms so it can sometimes be difficult to understand the similarities and differences between them. This blog will give you a clear definition of the terms, processes, and trends for KYC/AML.

AML and KYC meaning

Know Your Customer (KYC) is the process of verifying the identity of customers to ensure they are who they claim to be. Businesses must collect at least the name, address, and date of birth of customers at the point of account opening and then verify this data by using Credit Reference Agencies or other data sources.

Additional measures in the KYC process can include document verification which is used when KYC data is unavailable or Enhanced Due Diligence (EDD) where there is a high degree of risk. By collecting relevant information, businesses can assess the risk associated with each customer and monitor their activities accordingly.

Anti-Money Laundering (AML) refers to a set of laws, regulations and procedures aimed at detecting and preventing money laundering activities. Money laundering involves disguising the origins of illegally obtained funds to make them appear legitimate which helps fund financial crime and terrorist financing.

To combat money laundering, regulated entities use AML checks which include checking for Politically Exposed Persons (PEPs), sanctioned individuals and entities, adverse media, and watchlists to identify where there is a risk of money laundering.

It is illegal to do business with sanctioned individuals so it can be argued that this is the most important check in the AML process. However, identifying if the customer if politically exposed or has adverse media against them is also a critical aspect of preventing illicit activities.

Difference between KYC and AML

Whilst the AML and KYC difference is evident in their focus and scope, the processes work in harmony to deliver a complete compliance program. Regulated entities are required by law to use KYC and AML processes in their customer onboarding and ongoing monitoring procedures. However, there are some key differences to AML & KYC and the role they serve in customer due diligence.

KYC checks are focused entirely on identity verification. KYC is typically the first step in the identification process as it confirms that the individual or entity attempting to onboard are who they claim to be. Regulated entities achieve this by matching name, address, and date of birth against various data sources to find a match.

AML checks on the other hand are intended to prevent financial crime and illicit activities. By identifying PEPs, sanctions, and adverse media, businesses can begin to understand the risk associated with customers and perform manual intervention or, in some cases, reject the onboarding attempt.

Despite this, due to rising customer expectations and complexity of global KYC and AML regulations, the process has shifted away from being siloed and both are critical to achieving regulatory adherence.

How to combine KYC and AML

KYC AML check example

In an increasingly digitised world, the KYC AML process has become more of a combined exercise as part of a wider identity verification function.

Customers expectations are constantly increasing and it’s no longer fit for purpose to perform manual verification which can take days to complete. Not only does using technology to perform real-time verification get to revenue faster but it also avoids the risk of human error.

The emergence of RegTech in the last decade has provided regulated entities with automated KYC and AML software to provide a seamless, real-time customer onboarding journey.

RegTech solutions also provide more detailed reporting and remediation functionality to ensure that compliance teams can not only provide a real-time solution but can also leverage the software to spend less time reviewing results or performing unnecessary remediation, and more time dealing with complex or high-risk cases.

KYC and AML processes

In the KYC process, several key pieces of information must be collected from customers. The critical elements that need to be collected are name, address, and date of birth. By having access to this information, businesses can then use data sources to such as credit or telco to find a match. Ultimately, that match will confirm that the customer attempting to onboard is who they claim to be.

However, as identity theft and fraud advance it has become easier for criminals to access the name, address, and date of birth of other individuals and begin to create fake accounts under that person’s name.

Therefore, the emergence of document verification is now also a popular choice during the KYC process. This typically involves asking the customer to take a photo of an official government issued document, such as a passport or driver’s license, and then perform relevant checks to ensure that the document is legitimate and hasn’t been tampered with.

Further to this, facial comparison is deployed in conjunction with the document verification check which will ask a user to take a ‘selfie’ and then match the image taken against the image on the identity document. Advanced facial comparison will include technology such as liveness, providing a strong degree of confidence that the person behind the camera is the person attempting to onboard.

To perform an Anti-Money Laundering (AML) check the only required field is full name although having access to date of birth will significantly cut down the number of returned matches.

The AML process serves a slightly different purpose to KYC in that its objective is to identify any suspicious customers who could pose a risk to the business. Entities must comply with global AML regulation as set out by organisations such as the Financial Conduct Authority (FCA) and the Financial Action Task Force (FATF).

AML at the point of account opening will check against global Politically Exposed Persons (PEPs), sanctions, adverse media, and watchlists to discover any risk of financial crime. Businesses are notified when a match is found and then advised to act on the decision to accept or reject onboarding.

Next steps will involve performing a manual review, asking the customer for more information, or in some cases (particularly if the customer is sanctioned), automatically rejecting the onboarding attempt.

Not only is it critical to perform AML checks at the point of onboarding, but businesses must also perform routine re-screening of their client base to understand if circumstances have changed. An individual attempting to onboard today might not pose a risk of illicit activities, but in the future the risk might have increased.

Overall, this demonstrates the importance of synergy in the AML KYC compliance process. Whilst the data collected from customers is the same for both AML and KYC policies, there is a significant amount of work involved at the onboarding process to extract the relevant information. Real-time solutions can perform AML KYC checks instantly and trigger automatically leading to a more efficient onboarding experience.

How FullCircl can help

FullCircl exists to remove the regulatory and verification roadblocks that drive revenue growth through a leading IDV orchestration platform. The W2 by FullCircl platform offers AML KYC software in 160+ countries to ensure regulated entities can satisfy regulatory requirements whilst improving the effectiveness of their customer due diligence and onboarding efforts.

“We were instantly attracted to W2 [by FullCircl] because it has continuity built in,” explained Alison Cleggett, Head of Compliance at Caxton. “W2 also fits with the ethos of Caxton and our focus on putting clients at the heart of everything we do. By partnering with W2 we’ve been able to satisfy the need for custom screening methods for different data sets. It’s a highly intelligent platform that support all of our needs, and the team delivers a dedicated level of service.”

FullCircl provides more than an off-the-shelf product. We collaborate with every client to understand their AML KYC requirements and craft a custom solution to empower compliant growth.

Interested in hearing more? Contact us today for a free consultation and demonstration of the FullCircl platform.

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