Two essential pillars of financial crime prevention are Know Your Customer (KYC) and Anti-Money Laundering (AML). Despite their frequent usage together, they have different functions. Nestled within the larger AML framework, KYC is a procedure that emphasises risk assessment and identity verification. Transaction monitoring, sanctions screening, and reporting suspicious activity are just a few of the many regulatory measures that fall under the much broader purview of AML.
Businesses in regulated sectors like banking, fintech, cryptocurrency, real estate, and more must comprehend the differences between AML and KYC as well as how they complement one another. Effective AML and KYC procedures are now essential since global financial crime is expected to cost between 2% and 5% of GDP, or up to $2 trillion yearlya ccording to the research of UNODC.
What Is Anti-Money Laundering (AML)?
The laws, regulations, and practices known as anti-money laundering are intended to identify and stop the concealment of the source of funds that have been obtained unlawfully. AML frameworks are designed to prevent terrorist organisations and criminals from using financial systems to "clean" and incorporate illicit funds into the official economy.
What is the Purpose of AML?
The following are the main goals of AML measures:
- Preventing financial crime, which includes organised crime, drug trafficking, tax evasion, corruption, and the funding of terrorism.
- Ensuring that institutions are aware of their dealing partners in order to promote financial transparency.
- Financial system protection: Increasing integrity and trust in international finance.
- Encouraging enforcement: Assisting law enforcement and regulators in identifying illegal activity.
What Are the Key Features of AML?
The following essential elements are commonly found in AML programs:
- Customer Due Diligence (CDD): Compiling and confirming risk profiles and customer identities.
- Ongoing Monitoring: Keeping tabs on account activity to spot irregularities.
- Suspicious Activity Reporting (SAR): Notifying authorities of suspicious activity when warning signs appear.
- Keeping clients off of international watchlists is the goal of sanctions and PEP screening.
- Internal Controls & Training: To ensure compliance, policies and employee training must be put in place.
What Is Know Your Customer (KYC)?
KYC Definition
The process of confirming a customer's identity and comprehending their financial behaviour prior to forming a business relationship is known as Know Your Customer. Although it focusses on the customer's identity, activities, and whether or not their transactions fit their profile, it is a crucial component of AML.
What is KYC used for?
KYC benefits companies:
- Confirm your identity: Cut down on the dangers of fraud and impersonation.
- Evaluate the risk: Determine which clients pose a greater risk of money laundering.
- Verify adherence: fulfil the legal standards established by both domestic and foreign authorities.
- Keep track of your customers: For future research and audit trails, if required.
What is the Purpose of KYC?
CIP, or the Customer Identification Program:
Gather and authenticate official identification documents, such as passports, driver's licenses, or national ID cards, in accordance with KYC regulations. Verify the customer's identity by comparing their information with trustworthy, independent data sources, like databases or registries. Preventing fraud and identity theft starts with this step.
KYC Work Process
Customer Due Diligence (CDD):
Compile and evaluate data regarding the client's line of work, funding source, and anticipated transactions. This entails being aware of the account's objective and the kind of activity it will support. Assign a risk level—low, medium, or high—based on this assessment and variables like location, industry involvement, or transaction patterns. CDD assists in creating a distinct risk profile for every client.
Enhanced Due Diligence (EDD):
Apply extra levels of scrutiny to clients who pose a greater risk, such as offshore entities or politically exposed persons (PEPs). Getting more specific information about the client's activities, business transactions, or wealth source is one way to do this. Identify the beneficial owners of businesses and any possible connections to illegal activities as part of a thorough investigation into the customer's background. These steps are intended to lessen the increased risks connected to these accounts.
Ongoing Monitoring:
Keep an eye on consumer activity to spot odd or suspicious activity that might point to possible fraud or money laundering. This entails keeping tabs on transactions, revising client profiles, and analysing trends over time. If a customer's risk profile significantly changes, for example, by involving large, unexplained transactions or connections to high-risk jurisdictions, then trigger alerts and update KYC data. Frequent monitoring helps quickly identify risks and guarantees compliance.
AML vs KYC: Key Differences
Despite their close relationship, AML and KYC are not the same thing. One component of a larger AML strategy is KYC. It is essential to comprehend the differences between the two in order to design a financial crime prevention program that is both compliant and successful.
- Functionality: The initial stage of AML is KYC. AML guarantees that you continuously monitor and report any suspicious activity throughout the relationship, while KYC helps you get to know the customer.
- Regulatory Focus: Governmental organisations enforce AML frameworks, which are created at a macro level. Within those frameworks, KYC is a compliance requirement that is frequently managed internally by RegTech platforms or compliance teams.
- Tools Used: Address validation, facial recognition, and ID verification systems are examples of KYC tools. AML tools include automated STR (Suspicious Transaction Report) filing, fuzzy matching against global watchlists, and behavior-based monitoring.
AML vs. KYC Comparison Table
Feature | AML | KYC |
Definition | Legal and procedural framework to prevent money laundering and terrorism financing | A specific process to identify and verify customer identities |
Scope | Broad—includes transaction monitoring, SARs, sanctions screening | Narrower—focused on identity verification and risk profiling |
Includes | KYC, ongoing monitoring, PEP/sanction screening, reporting | CIP, CDD, EDD, ongoing KYC reviews |
When Applied | Throughout customer lifecycle and across operations | At onboarding and periodically based on risk |
Objective | Detect and prevent illicit money flow | Understand who the customer is and their financial behavior |
Governed By | FATF, EU AMLD, FinCEN, MAS, FCA, etc. | Usually defined within AML regulations |
KYC as an AML Compliance Component
KYC is a legal requirement incorporated into AML regimes worldwide; it is not a stand-alone policy. Strong KYC programs are seen by regulators as the cornerstone of successful AML compliance.
Why KYC Is Important for AML?
Inadequate or antiquated KYC (Know Your Customer) procedures can lead to system vulnerabilities that let criminals get past preliminary screenings. This undermines downstream AML (Anti-Money Laundering) efforts, making it more difficult to identify and stop illegal activities like fraud or money laundering. The basis for efficient and astute transaction monitoring is KYC data. Financial institutions can respond more quickly and accurately when a transaction is deemed "unusual" or potentially suspicious for a particular person or entity by knowing the customer's profile and typical behaviour.
Good KYC procedures are also essential for lowering false positives during sanctions or adverse media screening. Precise name matches are guaranteed by accurate and comprehensive customer data, which also reduces errors and avoids needless interruptions to actual clients while preserving compliance.
How AML and KYC Work Together?
Despite their differences, AML and KYC must work together to create a successful compliance ecosystem. Consider them as ongoing data-sharing front-end (KYC) and back-end (AML) tools.
Workflow for Integrated Compliance
KYC Stage of Customer Onboarding:
During this phase, to verify the customer's identity, identity documents like passports, driver's licenses, or national IDs are gathered and examined. After a comprehensive risk assessment, the customer is given a risk score. This score is based on their transaction history, occupation, and geographic location. To make sure the client isn't marked for closer regulatory scrutiny or denied access to services, lists of sanctions and politically exposed persons (PEPs) are cross-checked closely.
Monitoring & Screening (AML Stage):
Ongoing transaction monitoring is carried out to identify odd or questionable patterns of activity. These might point to possible fraud or money laundering. To find any new threats, customer accounts are routinely checked against updated watchlists that include sanctions, PEPs, and adverse media databases. Real-time risk management is achieved by dynamically adjusting risk scores in response to external risk factors or changes in customer behaviour.
Reporting (AML Stage):
Suspicious Activity Reports (SAR) or Suspicious Transaction Reports (STR) are created if any transactions or account activities are identified and flagged suspicious during monitoring. These reports describe the suspicious activity and include supporting documentation and are sent to the appropriate regulatory body or financial intelligence unit.
Periodic KYC Refresh:
This involves reviewing and updating customer KYC information on a regular basis. This is done to ensure regulatory compliance. This review may take place every few years for low-risk clients and once a year or more frequently for high-risk clients.
To guarantee adherence to changing regulatory standards, the process entails reevaluating the customer's risk profile, updating contact details, and re-verifying identity documents. Let’s give an example from the real world. When a user signs up, a cryptocurrency exchange verifies their passport and facial biometrics as part of KYC. The AML engine keeps a close eye on the volume of transactions once the user begins trading. An alert is raised if the user transfers $50,000 in cryptocurrency to a known darknet wallet.
AML and KYC Software Solutions
Manual procedures are no longer adequate to satisfy regulatory requirements in the current digital compliance environment. To increase the speed and accuracy of verification, screening, and risk detection processes, financial institutions, fintechs, and even small businesses are implementing AML and KYC software.
Why Use?
- Real-time screening: Clients are immediately checked against watchlists, PEP, and thousands of sanctions.
- Scalability: Manage thousands of transactions and onboardings every day with little assistance from humans.
- Audit readiness: For regulatory audits, software platforms keep comprehensive logs.
- Lower expenses: Automation eliminates the need for sizable compliance teams.
- Enhanced accuracy: AI-driven systems raise the precision of risk detection and decrease false positives.
Essential Elements of KYC and AML Software
Essential features of AML & KYC software are intended to improve risk management, expedite compliance procedures, and guarantee effective adherence to regulatory standards.
Function | Description |
Identity Verification | Verifies ID documents, biometric data, and proof of address |
Sanctions & PEP Screening | Cross-checks customer names against global watchlists |
Adverse Media Monitoring | Flags customers linked to negative news and criminal allegations |
Transaction Monitoring | Analyzes patterns to detect suspicious behavior in real-time |
Customer Risk Scoring | Assigns dynamic risk levels based on behavior, geography, and profile |
Ongoing Monitoring | Continuously checks customers for new risk indicators |
Reporting & Case Management | Generates alerts, SARs/STRs, and manages investigations |
Top AML and KYC Software Providers (2025)
In 2025, the Know Your Customer (KYC) and Anti-Money Laundering (AML) software landscapes still changing quickly. Prominent suppliers in this field help businesses reduce the risk of financial crime and expedite regulatory procedures by fusing cutting-edge technology with strong compliance solutions.
Provider | Best For | Notable Strengths |
Sanction Scanner | All-in-one AML & KYC for fintechs, crypto, PSPs | Real-time global screening, modular APIs |
ComplyAdvantage | Mid-to-large enterprises | Advanced AI, AML risk database |
LexisNexis Risk Solutions | Established banks & insurers | Deep global watchlists, analytics |
Sumsub | Fintechs & VASPs | Identity verification & KYB onboarding |
Refinitiv World-Check | Global institutions | Robust watchlists, extensive PEP profiles |
Shufti Pro | Rapid identity verification | Fast onboarding for low-risk customers |
NameScan | Sanctions & PEP screening | Budget-friendly screening-as-a-service |
How to Choose the Right AML/KYC Platform?
Think about the following when choosing an AML or KYC software solution:
Regulatory Coverage: Does it adhere to national and international regulations (such as those set forth by the FATF, 6AMLD, and FinCEN)?
Data Coverage: Are the PEP and sanction lists complete and updated every day?
API & Integration: Can it be incorporated into your CRM, wallet, or onboarding systems?
Customisable Risk Rules: Can you alter risk scoring and alerts to suit your company's requirements?
Reporting and Auditing Skills: Are STR reporting and audit trails supported?
Localisation & Customer Support: Is the platform tailored to your nation, language, and clientele?
AML & KYC Screening and Checks
The foundation of both AML and KYC programs is screening. AML screening is a continuous requirement that spans the whole customer lifecycle, whereas KYC checks take place during onboarding.
KYC Checks (during onboarding):
Identity verification: A careful examination of official documents, such as a driver's license, passport, or national ID, to make sure the information matches the person's profile.
Facial biometrics: Cutting-edge technology that verifies a person's identity using a live image or selfie and identifies attempts at spoofing using masks or phoney photos.
Address verification: To ensure that the address provided is correct and current, proof of residence is verified using documents such as a utility bill, bank statement, or digital ID.
Funds source: To ensure compliance with financial regulations and prevent fraud, comprehensive documentation, such as pay stubs, tax returns, or transaction records, is necessary to explain how funds were acquired.
Ongoing AML Checks:
Sanctions list screening: Verifying that clients are in compliance with international regulatory standards by thoroughly comparing them to lists of international sanctions, such as those maintained by OFAC, the EU, the UN, HMT, and others.
PEP screening: To reduce the risks of increased exposure to corruption or bribery, PEPs and their close associates are identified.
Adverse media screening: looking through international media databases for any unfavourable stories or news that might point to a connection to financial crimes like money laundering, fraud, or the funding of terrorism.
Transaction monitoring: The ongoing examination of financial transactions to spot odd trends or high-risk conduct that aids in spotting and stopping possible criminal activity.
Geographic risk screening: Evaluating and flagging clients based in or associated with high-risk jurisdictions that have a history of financial crime or lax regulatory oversight.
Who Uses AML and KYC Processes?
Many different types of institutions are subject to AML and KYC regulations, particularly those that deal with large amounts of financial transactions or customer onboarding.
Principal Users:
- The biggest compliance burden is borne by banks and credit unions, which are governed by local, FATF, and Basel regulations.
- Fintech Companies: Local AML regulations must be followed by BNPL, digital banking, neobanks, and e-wallets.
- Cryptocurrency Exchanges & VASPs: In the majority of regulated markets, AML/KYC compliance is required.
- Payment processors and PSPs: Necessary for merchant screening and payment activity tracking.
- Wealth management and insurance companies are required to screen out unusual investments and validate high-net-worth customers.
- Real Estate & Legal Firms (DNFBPs): Frequently used to launder funds through shell corporations or real estate.
Regulatory Organisations Behind AML and KYC
National regulators enforce AML and KYC procedures, which are frequently in line with international guidelines like the FATF Recommendations.
Important International AML/KYC Regulators:
KYC and AML processes are enforced by national regulators, often aligned with international standards such as the FATF Recommendations.
Region | Regulator(s) | Role |
Global | FATF | Sets global AML standards |
USA | FinCEN, OCC, SEC | Oversees AML/KYC for all financial institutions |
EU | European Banking Authority (EBA) | Enforces AMLD directives |
UK | FCA (Financial Conduct Authority) | Implements AML & KYC via the Money Laundering Regs |
Singapore | MAS (Monetary Authority of Singapore) | AML/CFT Guidelines for financial and crypto sectors |
UAE | CBUAE, DFSA, FSRA | Separate frameworks for mainland and free zones |
What Are the AML and KYC Compliance Challenges?
Businesses encounter major challenges when putting AML and KYC frameworks into place, even with clear regulations.
Principal Difficulties:
- False positives: PEP or sanctions screening frequently yields inaccurate matches, resulting in needless delays and extra effort to confirm that the people who were mistakenly flagged were legitimate.
- Data silos: KYC data is frequently dispersed throughout systems or departments, which makes it difficult to compile customer data into a single view and raises the possibility of mistakes or oversights.
- Manual procedures: Human review still plays a significant role in onboarding and verification procedures, which can be laborious, error-prone, and challenging to scale as customer volumes increase.
- Regulatory fragmentation: Because laws and regulations differ between nations and industries, compliance can be complicated, making it challenging for companies to maintain uniform procedures throughout the world.
- Cost of compliance: Startups and cryptocurrency companies, which frequently lack the infrastructure and resources to manage the rising costs of compliance, may find it particularly difficult to meet regulatory requirements.
How to Stay Compliant with AML and KYC Regulations
Consolidate KYC information: Maintain all risk profiles and customer identity data on a single compliance platform. This lowers the possibility of data silos or errors by guaranteeing simple access and uniformity across teams.
- Make use of real-time screening resources: Automate important compliance checks like adverse media screening, politically exposed persons (PEP) checks, and sanctions lists. Real-time updates shield your company from possible dangers by ensuring that no important information is overlooked.
- Automate transaction monitoring: Use cutting-edge AI and machine learning technologies to identify questionable activity while drastically lowering false positives. Compliance teams can now concentrate on transactions that pose a real risk.
- Put a risk-based approach (RBA) into practice: Apply deeper and more comprehensive checks to target higher-risk clients with your compliance efforts. While upholding compliance standards, this strategy guarantees improved resource allocation.
- Keep track of audit trails: Maintain a thorough record of all KYC and AML activities, including choices and procedures. This meets regulatory requirements during audits or investigations in addition to helping with internal reviews.
- Regularly update your policies to reflect any changes in local and international regulations to stay ahead of compliance risks. This proactive strategy reduces susceptibilities to penalties or sanctions.
- Educate your group: To keep your employees abreast of the most recent compliance procedures, regular and thorough AML/KYC training is crucial. This strengthens the overall compliance framework of your company and lowers human error.
How Can Sanction Scanner Help?
Financial institutions in more than 45 countries trust Sanction Scanner's all-in-one, AI-powered AML and KYC compliance platform. Important characteristics include:
- Global Sanction & PEP Screening: fuzzy name matching on over 3000 updated lists.
- Customer Risk Scoring: Determined by dynamic risk behaviour and rules.
- Adverse Media Screening: Up-to-date information from international news and legal sources.
- KYC & Onboarding Automation: Quick, legal onboarding for all risk levels.
- Constant Monitoring: Alerts and updates every day to ensure ongoing compliance.
- Clients of Sanction Scanner cut false positives by 60% and manual screening time by 70%.
Check out our complete AML & KYC suite, request a demo now.
FAQ's Blog Post
AML and KYC help banks prevent financial crimes like money laundering and fraud. They also ensure compliance with international regulations and protect institutional reputation.
KYC should be reviewed regularly based on a customer's risk profile—high-risk clients may require annual updates. Regulatory guidelines often recommend updates every 1 to 3 years.
The compliance officer or AML officer is typically responsible for implementing and overseeing AML measures. In regulated sectors, board-level accountability is also required.
Common KYC documents include government-issued IDs, proof of address, and sometimes income or business documentation. Requirements may vary by country or institution.
KYC verifies a customer's identity at onboarding, while AML screening continuously monitors customers against sanctions, PEP, and watchlists. Both are essential for effective compliance.
Non-compliance can result in hefty fines, legal sanctions, and reputational damage. Some penalties exceed hundreds of millions of dollars globally.
Yes, many companies use digital KYC solutions with biometric verification and document uploads. This is known as eKYC or digital onboarding.
Effective AML/KYC checks may slightly increase onboarding time but significantly reduce fraud risk. Automation can streamline the process without compromising compliance.