What’s the Difference Between KYC Checks and AML Checks?

AML (Anti-Money Laundering) regulations are mandated by several national and international authorities. Authorities like the Financial Conduct Authority (FCA) have worked in tandem with governments worldwide to tackle the very-much-still present threat of money laundering and financing of terrorism.  

As part of the collaborative effort to tackle widespread money laundering for businesses, several background checks and employment screening procedures have been made obligatory for financial institutions to comply with AML regulations. This includes the KYC (Know Your Customer) process.

Given the proximity of AML and KYC, the terms are often used interchangeably, making it difficult to understand their key differences. To clear up any confusion, we have created this short guide explaining the differences between KYC and AML, which will hopefully help you.

What is AML?

The term ‘AML’ is widely known across various sectors, such as the finance sector and stands for ‘Anti-Money Laundering’. 

AML refers to an organisation's overall processes, measures and steps to tackle financial crime. Crimes like fraud can damage a company’s reputation, leading many companies to undertake an AML Check on all employees. 

Financial organisations must fulfil their AML compliance obligations to protect themselves against these crimes. This includes completing the necessary checks when appropriate, implementing a strict AML policy and, where applicable, AML background checks on existing and prospective employees.

What is KYC?

KYC stands for ‘Know Your Customer’ and is integral to a company’s anti-money laundering program. 

This vital process gathers information on a company’s clients and officially verifies their identity. The verification, in turn, helps a business to identify and assess the risks associated with each client and determine their legitimacy.

Differences Between KYC and AML

AML is essentially an umbrella term describing the full range of regulatory processes financial institutions must follow. As a result, KYC falls under AML Checks as a minor component which involves a company verifying the identity of its clients and customers. 

Many organisations mistakenly use the terms AML and KYC incorrectly, blurring the lines between both of these acronyms, which, perhaps surprisingly, opens the door to legal action for failing to conduct the correct process. Failing to complete the proper KYC checks and other similar background screening checks can result in hefty fines or, in the worst cases, prison sentences.

An AML program consists of the following:

  • KYC procedure (CDD and EDD - more information below)
  • Risk-based AML policies
  • Ongoing risk assessments
  • Ongoing AML monitoring
  • AML compliance training
  • Internal audits and controls

Customer Due Diligence

Establishing trust is a crucial step in a relationship for any business, specifically financial organisations. Customer Due Diligence (CDD) sits within KYC checks, and manages as well as protects companies against criminals and Politically Exposed Persons (PEPs) who might present a risk. 

There are three different levels of Customer Due Diligence:

Simplified Due Diligence

Simplified Due Diligence is present in a situation where there is a low risk of money laundering and consequences as such, and therefore a full CDD is not required.

Basic Due Diligence

Basic Due Diligence is information collected for all businesses to verify a customer's identity and assess the risks associated with that customer.

Enhanced Due Diligence

Enhanced Due Diligence is any additional information collected about customers to provide a business with a much deeper understanding of how these customers interact with the business and therefore allow the company to mitigate any associated risks. 

In summary, CDD is a component of the KYC processes, which sit under the AML screening process.

Differences Between KYC and AML

Compliance with AML policies, including KYC, is mandatory in institutions with strict regulations. Some examples of these include:

  • Financial institutions
  • Credit institutions
  • Insurance companies
  • E-money institutions
  • Payment institutions
  • Virtual Assets Service Providers (VASPs)
  • Gambling service providers
  • Art dealers, etc

KYC and AML Background Checks

Financial institutions should take anti-money laundering checks seriously, as failing to do so can lead to them being dealt heavy fines and financial penalties. 

At Eurocom CI, we can provide bespoke, end-to-end background check services for organisations that need to fulfil their AML obligations. We are an approved third-party background check agency regularly working with large-scale FCA-regulated companies to vet their internal and external personnel. 

The financial checks we can conduct for you include (though are not limited to):

  • Credit check (including adverse credit search)
  • Bankruptcy and insolvency
  • FCA regulatory references
  • Financial Services Register
  • Notices of Correction
  • County Court Judgements (CCJs)

We also conduct employment background checks like criminal records checks.

Bespoke Checks for Finance Companies

The benefit of working with Eurocom CI is we can incorporate all your required background screening checks into a single solution which gives you greater control. Whichever background screening services you require for your organisation, we can factor that into a bespoke pre-employment screening process that your HR teams can utilise effectively and with ease. 

To find out how we can do this for your financial organisation, please contact Eurocom CI today.