KYC generally stands for Knowing your customer. Making sure that you know who you are doing business with, collecting identification, and verifying its validity.
AML stands for anti-money laundering and describes laws that prevent criminal financing.
They involve a whole range of things, including knowing your customer. AML typically includes activities such as
- Verifying that your client is not included in any international criminal watchlists
- Maintaining modern Cybersecurity measures
- KYC is only part of AML, but they are usually used interchangeably so for the purposes of this post, we will group them as AML/KYC.
If you want to get more information regarding KYC compliance program, then you can browse the web.
Why do businesses need AML/KYC?
Generally speaking, it is your responsibility to avoid doing business with criminal enterprises. Period.
Financial institutions are usually required by government agencies to proactively participate in these practices. FINRA holds authority over the financial sector and has several programs with accessible databases to verify IDs of entities. For example, Broker Check utilizes FINRA’s Central Repository Registration to research the background and experience of financial brokers, advisors, and firms.
Collect and verify ID and registration of any entity involved as well as any individuals. Research the entity to make sure that the information provided is consistent. This is an important part of preventing money laundering, but it is just one small part of successful anti-money laundering practice.