Hi there, welcome to the third part of MemberCheck Explainers, a series of bite-sized videos where we discuss all the key terminologies in fraud and risk management.
In our previous episodes, we spoke about AML and KYC, two very common acronyms that you should now know about already.
Need a quick refresher? No worries.
AML stands for Anti-Money Laundering. and KYC, on the other hand, means Know Your Customer. Ringing any bells? Good!
In this episode we will find out what the main differences are between AML and KYC. They are two different things, although in the world of AML risk management, they complement each other very well.
As you would know, money laundering and terrorism financing are huge problems plaguing economies all over the world.
To combat these complex issues, governments have established compliance regulations that organisations and reporting entities must follow.
These compliance regulations are meant to prevent bad actors from using legitimate businesses to launder money or finance terrorist activities.
Two of the most important compliance regulations are AML and KYC. Both AML and KYC have their own set of guidelines that businesses and organizations must follow.
But what exactly are the differences between AML and KYC? Let's take a closer look.
What is AML?
AML refers to a set of laws, regulations, and procedures that organisations and reporting entities must follow to prevent money laundering.
Money laundering is the process of concealing the source of ill-gotten funds so that they appear to be legitimate. Organisations and reporting entities can unwittingly be used by bad actors to launder money, so it's important for businesses to implement adequate AML measures.
Organisations and reporting entities that are subject to AML laws and regulations include banks, money service businesses, broker-dealers, casinos and other gambling establishments.
Now you have a better understanding of what AML is, let’s discuss KYC.
KYC refers to a set of guidelines that business must follow to verify the identity of their customers.
The goal of KYC is to prevent fraud, money laundering, and other financial crimes.
To comply with KYC guidelines, businesses must gather certain information about their customers, such as their full name, date of birth, current address, etc.
Once this information has been gathered, businesses must then verify that the information is accurate.
Organisations that need to follow KYC procedures include banks, investment firms, insurers and credit card companies.
Although AML laws and regulations are primarily focused on financial institutions, any organisation that accepts payments or deals in cash is vulnerable to money laundering activities.
The main difference between AML and KYC, and make sure you remember this, is that AML focuses on preventing money laundering while KYC focuses on customer identification.
However, both AML and KYC play an important role in combating financial crime.
For this reason, it is important for all organisations and reporting entities to have robust AML and KYC measures in place.
So, in conclusion, Organisations and reporting entities play a vital role in combatting money laundering and terrorism financing.
To help fight these issues, governments have established compliance regulations, such as AML and KYC.
Both AML and KYC are important compliance regulations, but they serve different purposes.
AML focuses on preventing money laundering while KYC focuses on customer identification. By understanding the differences between the two, organisations and reporting entities can meet their regulatory obligations, prevent fraud, and mitigate risks.
That’s all the time we have for today’s episode where we unpacked the differences between AML and KYC.
Continue listening to our fourth episode where we introduce a few more important acronyms – PEP, SIP, and RCA.
Feeling curious? Head over to our website at www.membercheck.com to learn more on how MemberCheck can help you build trusted interactions by mitigating fraud and risk.
Thank you for your time and I’ll see you soon!