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AML KYC Compliance Explained

Anti-money laundering (AML) is a broader and more holistic practice than KYC. AML compliance is the comprehensive set of policies that a company uses to protect against criminal infiltration, money laundering, terrorism financing, and more. KYC is an important part of AML for corporations, banks, fintechs, and other financial institutions.

Know your customer (KYC) is the regulatory process in which a financial institution verifies a customer’s identity by assessing their credentials before allowing them to use a service. KYC policies allow companies to better understand their customers and their customers’ financial dealings, which helps to effectively mitigate and manage risks.

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How is KYC related to AML?

A company’s AML compliance program has many steps, and KYC is the first one. KYC is the process used to verify a client’s identity and understand their risk profile, but there are more steps necessary to completely protect against financial crimes.

A complete AML compliance program includes KYC procedure as an initial step to verify a customer’s identity, manage their risk factors, and monitor their accounts.

KYC is the most crucial step in an institution’s AML policy. It’s important to carefully verify a customer’s identity, assess their risk, understand a customer’s general financial habits, and have the necessary procedures in place to catch abnormalities. Strong AML compliance policies allow companies to easily find and eliminate risks as they arise.