What is the Difference Between KYC and AML?

What is the Difference Between KYC and AML?

As the financial industry moved to web services and the world overall became more interconnected, rules had to be put in place to keep banks and their clients protected. The two critical concepts that emerged are called Know Your Customer(KYC) and Anti-Money Laundering(AML).

These two processes are almost always used in conjunction, which can lead to some confusion as to which is which. Since both are crucial regulatory elements, it is essential that wealth management offices understand the differences between KYC and AML.

Not only are KYC and AML critical processes for any wealth management firm, but they can also be an important Achilles’ heel if not handled properly. A recent study found that over 40% of customers abandon an onboarding process when it takes over 10 minutes. 

This article will go over the differences between KYC and AML, and explain how Mako Fintech can help you speed up these processes to keep your customers engaged. 

Understanding Anti-Money Laundering (AML)

AML is the set of laws, regulations and procedures put in place by the government to prevent criminally obtained funds from being disguised or transferred between accounts to mask them from tax collection. 

Every single player within the financial ecosystem is bound by AML regulations, but wealth management offices have an increased responsibility since they oversee the initial data-gathering operation. 

In order to enforce these regulations, players in the financial industry must collect information and run checks such as:

  • Transaction Monitoring: Financial institutions monitor customer transactions to detect patterns and maneuvers typically found in money laundering or tax evasion schemes.
  • Regulatory Reporting: wealth management offices are required to run checks on their clients and report any suspicious findings to the appropriate authorities, such as the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) in Canada.
  • Compliance Programs: AML regulations must be governed by a comprehensive internal compliance program that must include nominating a Chief Compliance Officer and selecting technology to execute and streamline the AML verification activities.

AML measures have been in constant evolution since their implementations. This flexibility has been implemented by governments in order to respond to the rapidly changing nature of money laundering techniques, as well as regulatory landscapes.

What is Know Your Customer (KYC)?

KYC is the data-gathering process required to open a client account, verify the client’s identity, assess risks related to the account opening and comply with AML requirements. 

While KYC is often considered a part of AML, it’s an important process in its own right since it is often the first impression you give to your clients. Beyond regulatory requirements, having a streamlined KYC process is seen positively by new clients and showcases a firm’s commitment to technology. 

Here are the key aspects of KYC:

  • Identify and Verify Customer Identity: Financial institutions collect information such as names, addresses, and identification numbers to verify a customer's identity.
  • Understand Customer Behaviour: Financial institutions assess the customer's financial circumstances and records to understand the customer's profile and behaviour.
  • Assess Money Laundering Risks: Based on the information gathered, institutions assess the potential of their customers to engage in money laundering.

A well-rounded, accurate KYC process is not only a regulatory requirement; it is also a crucial step to allow wealth management firms to know their customers better and evaluate new services they might offer based on the information gathered. 

Interplay Between KYC and AML

KYC and AML are often mistaken for each other simply because they are intrinsically linked. The data gathered during the KYC process is what is parsed during AML checks to assess risk levels and discover illegal transactions. Here is a list of the most important KYC and AML synergies:

  1. Regulatory Compliance: The data gathered in the KYC process is essential to execute AML checks. A good KYC process also provides an auditable process for other regulatory requirements. 
  2. Risk Management: KYC allows institutions to assess the risk of individual clients in terms of money laundering.
  3. Operational Implementation: If a KYC process is missing certain steps, the effectiveness of the AML process is severely hamstrung. In fact, wealth management offices with incomplete KYC processes can face hefty fines if they cannot comply with every step of AML verifications. 

Challenges and Technological Solutions for KYC and AML

Since the KYC/AML process is quite tedious by hand, implementing measures to automate and digitize these tasks is often the first technological advancement a wealth management office puts in place.

Here are the most important aspects to keep in mind while you are evaluating this process:

  • Data Management: The KYC and AML process requires a large amount of sensitive data to be gathered. Ensure you have those capacities, or select a technological partner that will do it for you. 
  • Evolving Regulatory Landscape: The regulations around KYC and AML don’t change often, but it does happen. For that reason, your KYC process needs to be fairly flexible to react to these potential changes.
  • Technology Integration: Your KYC process can actually serve multiple business roles if properly integrated with your other tools. It’s a good idea to map out where else this data could be useful in other to get a better ROI from your client data. 

Mako Fintech allows you to customize and automate every step of your KYC process and AML verifications. AML lookups can be built directly into your account opening and combined with remote electronic identity verification. 

The collected data is then stored and harmonized to automatically pre-fill future KYC forms and other documents. Mako’s platform also allows you to track, review and approve forms for ID/AML lookup results in your Mako dashboard and onboard clients in a completely remote fashion. 


AML is an essential process that must be backed by a comprehensive KYC solution. Combatting money laundering is a duty shared by the financial industry as a whole, and it must be taken seriously. 

However, a good KYC process can provide other business benefits that should not be overlooked. When paired with good data management and analysis, your KYC can serve you in more ways than simple compliance.

If you’d like to explore what an automated, digital KYC process can do for your business, contact us here for a demo.

Photo by Kelly Sikkema on Unsplash

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