Identity verification is nowadays a crucial part of identity verification. According to FATF recommendations and various regulations, all businesses have to verify the customers during the onboarding process. Banks and other financial institutions are at stake if the verification process lacks robustness or does not have a verification process at all. In 2020, many banks were penalized for violating these laws and the aggregated bank fine was €12.09 billion worldwide. The number can significantly increase if the financial institutions do not comply with the regulations and perform KYC/AML checks. But many businesses fail to identify the difference between both of them.
Let’s discuss both of these verification systems in detail and decipher the difference between both of them.
What is KYC Verification?
KYC or Know Your Customer is an identity verification system that validates the identity of the end-user through different checks. These checks include document verification, face verification, and sometimes, consent verification. All these checks were previously performed manually. But the process was tedious and customers were unhappy with the extended delays during the process.
In the digital world, the KYC process is now driven by Artificial Intelligence. This reduces the burden on employees for verifying the identity of every customer, decreases the chances of errors, requires the least amount of time for completion, and above all it helps business entities in complying with the rigid KYC/AML regulations.
Features of KYC
KYC solutions in the digital era have the following features that make them inevitable for businesses. Taking a look at these features will help you decide on the best KYC service for your business as well.
- Reliable solution that can provide high accuracy levels of the verification results
- Must be a cost-effective system
- The solution must comply with the laws
- Global KYC service providers do not have ethnicity issues for verification
What is AML?
AML or Anti-Money Laundering system is another verification system that ensures that money launderers and other financial criminals stay away from financial infrastructure. Money laundering and terror financing are on the rise and there is a dire need for businesses, especially in the finance sector to combat financial crimes. Employing AML services can help all the business entities in achieving the goal.
Features of AML
Since it is the era of digitization and businesses need a solution that can verify all high-risk entities. Here are some features of the modern world’s AML that can help you choose the right service to secure your business:
The process is comprehensive
Verification is done against global watchlists like PEPs
Key Differences Between Both
Here are some of the key differences between KYC and AML that every business must know about.
- AML is done to combat the potential risk of money laundering and terror financing, whereas KYC is a simple system of verifying the identities of customers.
- KYC can help prevent various identity frauds, chargebacks and account takeover fraud. On the contrary, the sole aim of anti-money laundering is to combat financial crime like money laundering and terror financing.
- KYC is part of the AML process to verify identities and screen them against watchlists.
FATF Recommendations
According to FATF, all businesses in the finance, e-commerce sector, and virtual asset service providers have to perform KYC and AML checks on every stakeholder. Here’s a brief of the FATF recommendations:
- Corporate entities must implement a risk-based approach
- Identify risks and take necessary measures to mitigate those risks
- Draft and implement policies in the corporate infrastructure to combat those risks
- The preventive measures must be according to the AML and CFT measures defined by FATF
- The law enforcement body of the country is responsible to keep an eye on all the businesses
- Maintain a fair judiciary in the country
Why are KYC and AML Important for Businesses?
Know Your Customer (KYC) and Anti-Money Laundering (AML) are two processes that help businesses in various ways. Businesses have to employ at least one of them depending upon the nature of the business. Here are some perks of KYC and AML for businesses:
Effective Compliance with the KYC/AML Laws
The KYC and AML regulations across the world have become more rigid than ever. The aggregated bank’s fines were EUR 12.09 billion and the US had the most fines. Did you know that the penalties were imposed for breaching the AML laws? So, regulatory authorities are in action to combat financial crime. Effectively complying with the laws is not a piece of cake. By employing KYC and AML systems, businesses can effectively comply with the laws and avoid non-compliance penalties.
Fraud Prevention
Money laundering and terror financing have significantly increased over the course of time. AML screening and KYC monitoring, however, can help businesses in detecting imposters on time, leaving no chance of fraudulent activities.
All in all, KYC and AML are two systems that assist businesses in deterring fraudsters and combating financial crime. Moreover, they help in complying with the rigid KYC and AML laws.
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