KYC-AML: Meaning and difference

In the regulatory compliance space, the terms KYC and AML are often used interchangeably and are seen as the same thing. However, this is far from the truth, as both KYC and AML differ greatly in their meaning, especially in a regulatory context. The full forms of AML and KYC are Anti Money Laundering and Know Your Customer, respectively.

In order to address the growing problem of money laundering, both national and international bodies around the world provide guidelines for the finance industry. These impose certain screening and monitoring processes on all financial institutions so that the financial system is safeguarded from abuse by criminals. These AML checks in general are called AML-KYC compliance programs. However, KYC is a standalone process and there are separate KYC rules to be followed by financial institutions.

In order to successfully comply with anti-money laundering regulations, financial institutions must understand their AML and KYC obligations and develop effective AML-KYC compliance programs.

Understanding AML

Anti-money Laundering (AML) refers to the overall, broader measures and processes that financial institutions and governments use in order to prevent and combat financial crimes, specifically money laundering and terrorist financing. AML regulations are dictated by international bodies such as the United Nations Office on Drugs and Crime (UNODC) and Financial Action Task Force (FATF), regional bodies like the Financial Crimes Enforcement Network (FinCEN) and The Financial Industry Regulatory Authority (FINRA) in the US, as well as local governments and bodies.

The AML policy forms part of the broader, complete AML compliance program of a financial institution.

KYC and money laundering

Know Your Customer or KYC is a fundamental process in any financial institution’s anti-money laundering program. It is defined as the process through which these institutions gather information on their clients and verify their identities. This greatly helps them to adequately assess the risk associated with each client. For example, all customers of a bank must be verified before they can use services such as checking accounts and credit cards. Fintech companies are mandated to gather ample, verifiable information on their client and their identity in order to determine their legitimacy before beginning any business activities.

What is the difference between AML and KYC?

The difference between AML and KYC primarily lies in the notion that AML is an umbrella term for the full range of regulatory processes that firms must implement in order to carry out businesses legitimately. On the other hand, KYC (Know Your Customer) is a smaller component of AML that consists of firms verifying their customers’ identities. It is one of the steps in the larger AML compliance process.

A lot of financial institutions often get confused between KYC and AML, blur the lines between the two processes, and are subject to disciplinary action by regulatory bodies as a result. They can be fined or even sentenced to prison time based on the severity of the offence.

The key differences between KYC and AML are given in the following table. 

KYC and AML

How KYC and AML are connected

KYC and AML are deeply interconnected processes. KYC is the first step in the implementation of an AML programme or policy. It is the process through which the client’s identity is verified. The objective of KYC checks is to understand the clients, their demographics and financial dealings on a deeper level, in order to effectively manage AML risks. In general KYC involves the following processes:

  • Customer Due Diligence or CDD: It is the basic process of verifying customer identity either physically or through electronic means. It is applicable to all customers of a business.
  • Enhanced Due Diligence or EDD: It is a more advanced KYC procedure that is used primarily for high-risk customers. These customers are generally more prone to being involved in financial crimes, including money laundering and terrorist financing, hence the need for more thorough verification and sometimes more verification after onboarding.

Other elements in AML compliance

In addition to KYC, the AML compliance process involves the following elements:

  • Risk-based AML policies
  • Ongoing risk assessment and ongoing monitoring
  • AML compliance training programs for staff
  • Internal controls and internal audits

Importance of KYC and AML in banking​​

Both KYC and AML both play an integral role in a bank’s regulatory compliance. And to top it off, they are both risk-based approaches as well. They also share some common features such as client identification and risk management. But it is important to always bear in mind that these processes are not the same and serve varied functions. This will help banks to find the right professionals and team to take up each task — AML or KYC — and do it justice.

The prevention and implementation of anti-money laundering require an in-depth knowledge of a lot of factors. From the inner workings of the finance industry to an understanding of local, regional, national and international anti-money laundering regulations and rules, a successful AML professional must have a skill-set beyond that of KYC.

Regtech for KYC – AML compliance

Apart from having skilled professionals, financial institutions should also invest in effective software solutions to run their AML compliance programmes successfully. Many of the current AML-KYC solutions are not robust to capture the complexities of modern-day customer risk management. Customer AML risk ratings are either carried out manually or are based on models that use a limited set of pre-defined risk parameters. This leads to inadequate coverage of risk factors which vary in number and weightage from customer to customer.

Further, the information for most of these risk parameters is static and collected when an account is opened. Often, information about customers is not updated in the required format and frequency. The current models do not consider all the touchpoints of a customer’s activity map and inaccurately score customers, failing to detect some high-risk customers and often misclassifying thousands of low-risk customers as high risk.

Misclassification of customer risk leads to unnecessary case reviews, resulting in high costs and customer dissatisfaction. Adding to this, the static nature of the risk parameters fails to capture the changing behaviour of customers and dynamically adjust the risk ratings, exposing financial institutions to emerging threats.

Using artificial intelligence and machine learning

Today, modern technologies like AI and machine learning are getting widespread attention for their ability to improve business processes and regulators are encouraging banks to adopt innovative approaches to combat money laundering. In the area of AML compliance, the need of the hour is a sophisticated technology that can capture changing customer behaviour through proper identification of risk indicators and continuously update customer profiles as underlying activities change. There are various Regtech solutions that can ensure proper AML- KYC compliance in a sustainable manner.

Tookitaki’s solutions for AML – KYC compliance

Tookitaki developed an end-to-end AML-KYC compliance platform called the Anti-Money Laundering Suite (AMLS). It offers multiple solutions catering to the core AML activities such as transaction monitoring, name screening, transaction screening and customer risk scoring. Powered by advanced machine learning, AMLS addresses the market needs and provides an effective and scalable AML compliance solution.

To know more about our AML solution and its unique features, please contact us

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Comment by Regina Bailey on August 19, 2021

Great article.

Comment by slina on July 28, 2021

PLEASE EXPLAIN BRIEFLY

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Earlier in July, the European Commission came up with four legislative proposals. One of these was its 6th Anti Money Laundering Directive (AMLD 6) to support Anti-Money Laundering (AML) and counterin...

The Rise in Cryptocurrency Money Laundering Cases in 2021

Cryptocurrencies have been around for a while now. We’ve all heard of Bitcoin, Ethereum and Litecoin. As technology develops quickly, financial criminals keep up the pace to find new ways to exploit...

How Technology Can Ensure Effective AML Information Sharing

We are in a digital-first economy where goods and services delivery has moved significantly online. The availability of financial services related to investment, payments, money transfers and lending ...

Why Neo Banks Might Need a Different Customer Risk Assessment Approach

As financial institutions go increasingly digital in the wake of the COVID-19 crisis, physical verification of customers’ identity and paper forms might become practices of the past. In many countri...

Transaction Monitoring in Fintech: Challenges and Solutions

While the COVID-19 pandemic has affected the global economy with long-lasting implications for companies and consumers, the Fintech sector has largely been resilient with notable growth across most ge...

Getting Ready for Future: An AML Compliance Guide for Fintechs

The internet revolution and the smartphone revolution have changed the course of operations in many industries. The digital era brought about significant enhancements to economic utilities — in ...

Covid-19 and compliance challenges for payment companies

The COVID-19 pandemic has brought in fundamental changes to many industries, and the payments sector is no exception. Consumers across the globe now have a different approach as they consider commerce...

Assessing AML Compliance at Neobanks: Issues and Solutions

Considered the digital era’s answer to financial inclusion, neo-banking is rising to prominence, shattering the historical monopoly and hegemony of traditional banking. As populations across the glo...

How Criminals Launder COVID Funds via Online Investment Platforms

Fraud targeting governments’ pandemic-related welfare programs have seen criminals exploiting these schemes ever since countries started helping their citizens and businesses. If reports are correct...

Crowdfunding: Yet Another Unconventional Means to Launder Money

Having transformed many ideas into profitable businesses, crowdfunding, a new-gen investment trend enabled by the internet, has become the first resort for many entrepreneurs and small businesses. The...

The Crackdown on Shell Companies and the Role of Technology

The Anti-Money Laundering Act (AMLA) 2020, enacted as part of the National Defense Authorization Act (NDAA) 2021 of the US in January this year, had many key provisions to take the Anti-Money Launderi...

Tookitaki Powers AI-Driven Anti-Money Laundering Solution Using HPE GreenLake

Hewlett Packard Enterprise (HPE) announced a key collaboration with Tookitaki to provide a new offering designed for banks and financial institutions across Asia-Pacific. The new offering delivers T...

AMLA 2020: 8 Key Provisions that Financial Institutions Required to Know

The US Congress passed the National Defense Authorization Act (NDAA) 2021 on January 1, 2021, addressing a variety of pressing concerns related to the nation’s security. The act included a number of...

The Rising Case for RegTech to Address AML Risks Amid COVID-19

Emerged as a subset of FinTech, the Regulatory Technology (RegTech) industry has now gone more mainstream, thanks to regulators and industry practitioners. Recently, there have been many pro-RegTech c...

Hakrinbank Selects Tookitaki to Ensure Sustainable Financial Compliance Monitoring

Tookitaki announced a partnership with Hakrinbank, a leading South American bank based in Suriname, to fortify its Anti-Money Laundering (AML) detection and alerts management capabilities. To improve...

Breaking Barriers: 5 Key Insights on RegTech Adoption

HKMA in a report shared comprehensive hands-on experience and insights from respondents to better understand the factors and dependencies affecting AML/CFT Regtech adoption. The regulator collaborated...

How to Address Present-day Sanctions Screening Pain Points with AI

Sanctions risk of financial institutions is evolving in line with the global social, economic and political changes. As seen in recent news, governments across the globe are increasingly relying on sa...

Tookitaki Got Selected for FinTech Program: Asia meets Tokyo

Tookitaki has been listed among 8 Fintech startups in Asia for FinTech Program: Asia meets Tokyo, an accelerator launched by the Tokyo Metropolitan Government (TMG). We have been selected for our anti...

AML Alert Management: How AI can Augment Your Compliance Efficiency

The financial sector is facing one monster of a problem at the moment. As today’s financial institutions deal with millions of daily transactions, several thousands of routine financial transactions...

Tookitaki Recognised for Innovative Use of AI & Machine Learning

Tookitaki has won the Regtech Award for AI & Machine Learning and was highly commended in the solutions category for AML/CTF Compliance, in the 3rd Regulation Asia Awards for Excellence 2020 ...

Our UOB Success Tale: Setting a New Benchmark for AI-based AML Compliance

Tookitaki achieved a rare and historic milestone as our Anti-Money Laundering Suite (AMLS) solution went live within the premises of United Overseas Bank (UOB), one of the top 3 banks in Singapore.

Tookitaki Wins 2020 WITSA Digital Innovation Award

Tookitaki has won the 2020 Digital Innovation Award from the World Information Technology and Services Alliance (WITSA) as part of the industry body’s Global ICT Excellence Awards. Nominated by...

Money Laundering via Cryptocurrencies: All You Need to Know

Money laundering via cryptocurrency has been going on for a while now. We’ve all heard of Bitcoin, Ethereum and Dogecoin. Crypto is used by financial criminals globally but how are they getting away...

CNA 938 radio interviews Tookitaki Co-founder Jeeta Badopadhyay

Tookitaki Co-founder and COO Jeeta Bandopadhyay was named among the Singapore 100 Women in Tech (SG100WIT) List in September 2020. A collaboration between the Singapore Computer Society (SCS), IMDA, S...

Need for New Customer Risk Rating Models: Not All Customers Are Created Equal

Being estimated at between US$800 billion to US$2 trillion every year, money laundering is a serious problem for the global economy. While regulators and financial institutions are working hard to pre...

Is AML Compliance Heading for a New Normal in the Age of Digital Payments?

Increased digitization has influenced various businesses and brought in a paradigm shift in the way they create business models and approach growth opportunities. Moving away from conventional transac...

Excel to AI: How Reconciliation Tools Evolve for Better

In the world of finance, reconciliation is the process of comparing two related sets of records or two accounts at the end of a specific accounting period to find out if account balances are matching ...

Lessons Not Well Learned: 2020 AML Fines Cross 2019 Total

If research is to be believed, institutions across the globe have not done enough in the anti-money laundering (AML) compliance area. Data from consultancy Duff & Phelps revealed that AML fines in...

Exploring AML Risks in COVID-Era and the Ways to Address Them

The world continues to battle the COVID-19 pandemic and the crisis it brought in is unprecedented in the history of humankind. While there are a number of pandemic-related factors contributing to the ...

AML Amid COVID-19: Watch out for These FBI-listed Fraud Schemes

There has been a rise in the number of cybercrimes and fraud schemes across the globe ever since the proliferation of the COVID-19 pandemic. Criminals, in general, are taking advantage of people’s s...

OCC Spring Risk Perspective: 5 Takeaways on Compliance Risk

Despite its general strength, the US federal banking system is apparently susceptible to the ongoing economic weakness caused by the rampant spread of coronavirus. Earlier this month, The US Office of...

How Criminals Used COVID-19 Sales Pitch to Defraud, Launder Money

As the world is working hard to contain the spread of the COVID-19, criminals continue to take advantage of the pandemic. They are devising sophisticated methods to defraud people and launder the crim...

5 Top Myths and Facts about AI Implementation in AML Programs

We are more confirmed about the power of Artificial Intelligence (AI) to transform lives and businesses now. There are countless possible applications of AI and machine learning at present, and we see...

Typology Repository Management: Solving AML Problems Via Collective Intelligence and Continuous Learning

Despite its general strength, the US federal banking system is apparently susceptible to the ongoing economic weakness caused by the rampant spread of coronavirus. Earlier this month, The US Office of...

Whitepaper: Automated AML Pattern Detection Using Network Science

Despite its general strength, the US federal banking system is apparently susceptible to the ongoing economic weakness caused by the rampant spread of coronavirus. Earlier this month, The US Office of...

Money Laundering Amid COVID-19: What Regulators Across Globe Say

As the world continues to fight against the COVID-19 pandemic, there are reports that criminals are taking advantage of the difficult situation. They are seizing the moment to proliferate their crimin...

How will Art Cease to Be a Preferred Money Laundering Vehicle?

Money laundering via high-end art and antiquities is not new yet it is difficult to detect. Art-related money laundering amounts to about US$3 billion per year, according to this blog, quoting the Uni...

Beware! Money Mules in Demand amid COVID-19. Here’s an Effective Cure

If reports are to be believed, cybercrooks are taking advantage of the COVID-19 situation. They are targeting people who were laid off or working from home due to the pandemic to work for them as mone...

How do we weather a tornado of change?

“Great works are performed not by strength but by perseverance” – Samuel Johnson All of us are in challenging times. However, we cannot afford to be lethargic to life, work, and busi...

Roundtable Rewind: Embracing Next-gen Tech & Collaboration Key to Sustainability

As a regtech player with a vision to enable sustainable compliance programs in financial institutions, Tookitaki organized a first-of-its-kind industry roundtable in Charlotte, NC, USA to discuss oppo...

Tookitaki Appoints Industry Veteran Joe Friscia as Advisor

Tookitaki Holding Pte. Ltd. appointed industry veteran Joe Friscia, former President of NICE Actimize and BAE Systems as Advisor to the Company’s Advisory Board. Joe brings over 25 years’ extensi...

Should Modern Machines Be Ethical?

There are mounting concerns across the globe about the reliability and safety of artificial intelligence (AI) based systems and its enabling technologies such as machine learning (ML). On the air are ...

Tookitaki Raises Another US$11.7 million in Series A; Closes Round at US$19.2 million

– by Abhishek Chatterjee, Founder & CEO The Tookitaki team and I are excited to announce that we have raised an additional US$11.7 million in Series A funding, taking the total investment in...

30 Years of FATF: Notable Facts About Global AML Watchdog

The Financial Action Task Force (FATF), the intergovernmental body formed in 1989 to combating money laundering, is celebrating its 30th anniversary this year. Since its inception, the global agency p...

Tookitaki Joins Aite Financial Crime Forum as Sponsor

Technological advances have fundamentally changed the operational landscape of financial institutions. However, there are also new risks emerging in forms of sophisticated financial frauds and complex...

Will Machine Learning Replace Compliance Professionals?

The impact of modern technologies such as artificial intelligence (AI) and machine learning on job security has been a widely discussed topic today. Of course, AI has advanced very quickly in the last...

6 Most Prevalent Cyber-Laundering Methods in APAC

Despite being a medium to exchange information in real-time and with scale, the Internet is being misused in several ways. Among the slew of financial crimes facilitated by the Internet, money launder...

What Made Us Earn the WEF Technology Pioneer Title

Tookitaki has bagged another global acknowledgement for its outstanding works in the regulatory compliance field. Our company was selected among hundreds of candidates as one of the World Economic Fo...

We Stay as a Team, We Win as a Team and We Flourish as a Team

“Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to a...

ABA Regulatory Compliance Conference: 10 Sessions You Can’t Miss

The 2019 edition of the American Bankers Association (ABA) Regulatory Compliance Conference is a few more days away. Organized by the Washington, D.C.-based trade association, the conference is touted...

Tookitaki AMLS Wins SBR Technology Excellence Award 2019

Tookitaki’s Anti-Money Laundering Suite (AMLS), an end-to-end machine learning-powered transaction monitoring and names screening solution, has bagged the inaugural Singapore Business Review Tec...

Watchdogs Grow Optimistic about AI Prospects at Banks

Proper regulation of banking operations is important as any failure in the banking system would affect the wider economy. Therefore, banking is one of the most regulated industries across the globe. F...

Pitfall of Black Box AI at Banks: Explaining Your Models to Regulators

The use cases of artificial intelligence (AI) and machine learning in front-office, middle-office and back-office activities at banks are growing slowly but steadily. The major areas of AI play includ...

AI for Regulatory Compliance at Banks: 4 Assessments Before You Okay the Solution Proposal

Banking is one of the industries where artificial intelligence and machine learning find their applications at a rapid pace. Regulatory compliance within banking is an area which has become a costly a...

We Believe in Innovation, the Key to Survival and Growth

“Innovation distinguishes between a leader and a follower.” -Steve Jobs What comes on the top of your screen when you google the meaning of the word innovation is – the introduction of somet...

Compliance Functions in Need of a Technological Overhaul. Can Machine Learning be the Game-Changer?

McKinsey in its latest compliance benchmarking survey found that compliance function at financial institutions has reached “an inflection point” and current compliance standards are in an “incho...

Tookitaki Raises US$7.5 mn Series A from Global VCs to Transform Regulatory Compliance

Tookitaki, a regulatory technology company that aims to enable financial institutions to develop sustainable compliance programs, has raised US$7.5 million in Series A round. The round was co-led by L...

The Biggest Money Laundering Cases: From Wachovia to Danske Bank

Money laundering – the criminal activity of processing criminal proceeds to disguise their origin – is one of the gravest problems faced by the global economy, and its size is growing rapidly. It ...

A Modern Approach to Address the Reconciliation Challenges of Financial Services

Reconciliation of transactions is deemed critical for the smooth running of every financial institution. The speed and accuracy of data reconciliation can distinguish a successful institution from its...

Busting a Myth: Compliance Officer’s Job is All About Risk

Regulatory compliance has become a dreadful task for banks after regulators across the globe set stricter norms in the aftermath of the 2008 financial crisis in an effort to prevent financial crimes s...

Attending ACAMS Conference in Singapore? Tookitaki Awaits You with Its Disruptive AML Solution

“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it.”- Jeff Bezos Singapore is hosting ACAMS’...

MAS’ Stress on Transaction Monitoring for Effective AML/CFT Compliance and Machine Learning is the Answer

Singapore is known for its top-notch AML/CFT regime created through up-to-date legislation, stringent policy and uncompromising supervision to safeguard against the abuse of the city state’s financi...

Mifid II and the Pressing Need for a New Reconciliation Approach

The financial services industry in the EU has been confused with the introduction of a revamped version of the Markets in Financial Instruments Directive (Mifid II). The ambitious regulatory reforms t...

Is Automated Reconciliation Next to Impossible in Today’s Complex Financial World?

The 2008 global financial crisis and fairly new regulatory requirements like Basel III asked financial institutions (FIs) to cut operating costs and adopt a lean operations structure, pushing FIs to r...

Modern Tech to Reshape US AML Compliance with Regulators’ Recent Handshake

George Bernard Shaw once said: “Those who cannot change their minds cannot change anything.” The past week has seen a significant change of mind from financial regulators in the US in their ardent...

Skills Development: We Have Talents and We Strive to Multiply Them

“Mastery lies on an infinite continuum, and as a result, we will never reach the end. We can, however, see to it that we are as far along that continuum as our circumstance allows.” ― Chris Mat...

It’s Our Fourth Founding Day; Taking a Pause to Cherish Our Simple but Awesome Journey

Today, as we step into our 4th year of foundation, I feel proud and honored to be leading Tookitaki that has been successful in creating added value to all its stakeholders. I was never a CEO and Took...

Tookitaki Expands into the US with New Office in Charlotte

SINGAPORE, Sept. 24, 2018: Tookitaki Holding Pte Ltd, a leading regulatory technology company, is pleased to announce the official opening of its North American office in Charlotte, NC, in the Unite...

We Tame Machines but We Unleash Human Spirits

We are well aware of the fact that our progress as an organization is in the hands of our employees. The more energy, time and attention we invest in them, the more yield we receive. So, we always mak...

5 Modern Money Laundering Methods That Criminals Use

Modern money launderers are updating their methods to beat detection and avoid getting caught every single day. Where there is new technology, cryptocurrencies and processes, there is a money laundere...

Risk Management Conference: Positive Vibes from All Corners

The Risk Management Association’s (RMA) premier annual event, the Risk Management Conference, came to an end on 6 November, and Tookitaki had the privilege to attend the event which we believe was ...

Singapore Fintech Festival: Tookitaki to showcase advanced machine learning solutions in financial services

Singapore is assured of the Fintech world’s unwavering attention next week, as the city state, is hosting this year’s Fintech Festival during 12-16 November. Touted as the world’s largest platfo...

The RMA Clarion Call to Address Risks and the Tookitaki Way

Risk officers, doing your best today is good while preparing hard for tomorrow is extraordinary. Risk management at banks has become difficult due to operational and regulatory changes. The Risk Manag...