You may encounter the terms KYC and AML in the financial sector. These two terms are two critical regulators involved in the security processes of the financial system. With KYC, financial institutions identify their customers. They verify their identities. They can also determine their risk profiles.
They require identification documents and address verification information for their KYC processes. They may also request financial history information. The primary purpose here is to ensure that the customer is who they claim to be.
They try to detect potential risks in advance. The KYC process may be required for account opening, but it also continues with monitoring customer transactions. In other words, a customer who passes the KYC process is constantly under surveillance.
AML is a regulation aimed at preventing illegally obtained income from entering the financial system. It includes preventing activities such as money laundering, terrorist financing, and fraud. Financial institutions monitor suspicious transactions and report them to official authorities.
AML and KYC work together in the financial system, ensuring the security of individual and corporate investors. Compliance with international standards is supported, and the integrity of the financial system is preserved. Every institution within the financial system must strictly adhere to these two practices for legal compliance and security.
Join us in this blog as we explore KYC and AML standards, requirements, stages of each, the differences between them, where and when they are necessary and what they mean for companies in detail. Let’s start!
What Is Know Your Customer (KYC)?
“Know Your Customer” is the official process that financial institutions and businesses conduct to verify their customers’ identities. This process determines their risk profiles and aims to prevent illegal activities.
KYC requires customers to provide identification documents, passports, proof of income, and address information. The customer submits these official documents, and the necessary investigations are conducted. Here, the customer must prove that they are who they claim to be.
KYC procedures must be completed when opening an account. Since your transactions are continuously monitored, you must also adhere to these standards. This system ensures financial security and transparency.
This allows banks and cryptocurrency exchanges to operate in compliance with national and international regulations. If you want to make financial investments in a secure environment, you can work with Jeton.
If you want to further explore KYC regulations in crypto world, make sure to check out:
What Are the Five Stages of KYC?
During the KYC process, financial institutions and businesses must complete specific steps. Customers go through this process during the account opening process. International standards define the KYC implementation process. Those wishing to open an account must complete these processes.
You can complete the KYC process after completing five basic steps. Customer identification, identity verification, customer profiling, risk assessment, and continuous monitoring are the five stages of KYC:
1. Customer Identification
Financial institutions first focus on identifying their customers. During this stage, customers must provide basic personal data such as their first name, last name, date of birth, address, and contact information. This information creates an official record of the customer.
2. Identity Verification
The accuracy of the information you provide to your financial institution as a customer is verified with official documents. This is done through documents such as a passport, ID card, driver’s license, or proof of residence. Your bank may also request processes such as facial recognition and live video calls.
3. Customer Profiling
The third stage in the KYC process involves examining the customer’s financial history, income, and transaction habits. By completing these steps, a risk profile is created for the customer.
Based on this profile, the customer’s normal transaction behavior is determined. The system is immediately activated if they make any unusual movements.
4. Risk Assessment
In the financial sector, each customer’s risk level is different. In the fourth stage, they examine factors such as the customer’s country of residence, profession, source of income, and transaction volume.
Based on this, they place them in a low, medium, or high risk category. If you are a high-risk customer, controls will be more stringent.
5. Continuous Monitoring
They complete your KYC process when you open an account. However, as a customer, they constantly monitor your transactions. They may detect suspicious money transfers, unusual transaction volumes, or transactions conducted in risky regions. In these cases, they report transactions and, if there are any illegal activities, notify the relevant authorities.
What Is Anti-Money Laundering (AML)?
Anti-Money Laundering (AML) refers to practices and laws aimed at preventing criminal proceeds from entering the legal financial system. This includes illicit profits related to drug trafficking, corruption, smuggling, and organized crime.
Illicit profits can be purged through bank accounts, companies, or investment vehicles. Through AML practices, financial institutions identify and monitor their customers. Financial institutions and legal authorities strive to prevent illicit money from entering the financial system.
AML is implemented as a national and international obligation. Countries adhere to standards set by organizations such as the Financial Action Task Force. This is how they combat money laundering.
Banks, insurance companies, and cryptocurrency exchanges operate in accordance with AML obligations. Legal regulations prevent terrorist financing. For global security and financial transparency, you can conduct your financial transactions with Jeton‘s robust AML policy.
What Are the Four Stages of Money Laundering?
The process of legalizing illegally obtained income by concealing its source is called money laundering. During this process, criminal proceeds are integrated into the financial system. These funds can also be converted into legitimate assets.
The anti-money laundering regulations focus on preventing these activities. The money laundering process consists of four steps. Different methods are employed at each stage to conceal the traces of criminal proceeds.
The four stages of money laundering are as follows:
1. Placement
First, the cash or assets obtained through criminal activity are integrated into the financial system. This money can be deposited into bank accounts, exchanged for cash at currency exchanges, used at casinos, or used to purchase valuable goods.
This way, the money is introduced into the system without attracting attention. However, authorities can easily detect the situation at this stage.
2. Layering
After the first stage, the source of the money is concealed through complex financial transactions. Transfers can be made to different accounts. Offshore companies can be used.
Furthermore, forged invoices or international money movements can be made. At this stage, the connection of the money to the crime becomes blurred, making it difficult to trace.
3. Integration
In the third stage, money enters the economy as legitimate income. It is legitimized through real estate investments, corporate partnerships, luxury vehicle purchases, or commercial activities. Proceeds from crime can now be used as clean wealth.
4. Legitimization
In the final stage, criminal proceeds are supported by official documents and legal activities. Illegal money is now completely legal. The source of the money can be disclosed through tax returns, commercial contracts, or investment documents. Thus, the illicit money now appears legitimate in the eyes of regulatory bodies.
What Are AML KYC Requirements?
Financial institutions and cryptocurrency exchanges are legally required to implement AML and KYC processes. This allows for the integration of illicit revenues into the system. Terrorist financing is prevented, and customer identities are verified.
AML and KYC not only ensure legal compliance but also ensure customer trust and financial transparency. AML and KYC requirements are as follows:
- The customer’s identity is verified with official documents such as an ID card, passport, and driver’s license.
- The customer’s address is verified with invoices, proof of residence, or official records.
- Risk profiling is performed by examining the customer’s source of income, transaction volume, and field of activity.
- After opening an account, unusual or high-amount transactions are monitored. If any issues arise, the relevant authorities are notified.
- Customer transactions are continuously monitored, and suspicious transactions are immediately investigated.
- AML and KYC policies are established for the institution. Employees are also regularly trained on these issues.
- Regular reports are submitted to regulatory authorities, and audits are always prepared.
If you are looking for a platform that will ensure you have no problems with AML and KYC requirements, you can open an account at Jeton.
What Is the Relationship Between KYC and AML?
Know Your Customer and Anti-Money Laundering processes ensure the security of the financial system. KYC verifies customer identity. Financial institutions review your financial history as a customer. They then determine your risk profile and categorize you accordingly.
They utilize the information obtained through the AML process. They focus on identifying suspicious transactions that contradict your habits. This prevents illegal activities. If the KYC process is carried out correctly, the AML process can be effectively implemented.
AML systems are considered separate processes. However, both processes together create strong financial protection. If the KYC process is not carried out correctly, suspicious transactions cannot be detected during the AML process.
Even without AML procedures, the data collected during the KYC process remains a static record. Therefore, financial institutions must strictly adhere to KYC and AML processes.
Financially transparent banking is provided through Jeton. You can sign up now and open an account.
What Is the Difference Between KYC and AML?
KYC is a customer-focused process conducted by financial institutions. Identity information is collected from the customer. Address information is also requested for verification. Proof of income is requested to determine the source of the income. The risk level is then determined.
A bank implementing the KYC process learns who it is doing business with. You can think of KYC as a subcomponent of the AML process.
The AML process is much more comprehensive. Customers undergo many processes beyond identity verification. Suspicious transactions are constantly monitored. Transactions deemed suspicious are reported and then reported to legal authorities in accordance with internal corporate policies.
Employees must also be continuously trained for the AML process. Furthermore, financial institutions must work in compliance with regulatory authorities. AML can be implemented with the support of KYC as part of the fight against financial crimes.
Where and When Are KYC and AML Required?
KYC and AML processes ensure the security of the financial system. They also help prevent illegal activities. These two requirements aren’t limited to the banking sector. They are also applied in fintech, insurance, cryptocurrency exchanges, and even the real estate sector.
The primary goal of these practices is to identify potentially suspicious transactions by verifying customer identities. This prevents misuse of the financial system.
Where KYC and AML Processes Are Required:
- Banks and financial institutions implement them for account opening and loan applications. They are also frequently used for money transfers.
- Cryptocurrency exchanges require them for user registration and wallet transactions. High-volume trading is also closely monitored.
- Insurance companies utilize them for policy issuance and claim payments.
- Payment and fintech companies should utilize them for digital wallet opening and online payment services.
- Real estate and investment companies utilize them for high-volume trading and investment funds.
- Casinos and gaming platforms should also utilize them for high-volume deposits and withdrawals.
KYC and AML processes are not always necessary. Financial institutions and related services apply in certain situations.
When KYC and AML Processes Are Required:
- Identity verification is required for new customer registration when opening an account.
- It is implemented if a large money transfer is made or if the customer reaches an unusual transaction volume.
- It is strictly enforced for financial transactions related to risky areas.
- Additional verification and reporting processes are conducted if unusual activity is detected.
- AML and KYC processes are implemented if the customer has updated their information and their risk level is being reassessed.
Does KYC Prevent Money Laundering?
KYC processes cannot directly prevent money laundering. KYC is one of the most important building blocks of Anti-Money Laundering policies. Through KYC, financial institutions can identify their customers.
They learn their customers’ income sources and address information. They also determine their risk profiles. This information makes it more difficult for customers to introduce illicit income into the system. It also makes it harder to conduct transactions with anonymous or fake identities.
KYC immediately identifies risky situations in the first step of money laundering attempts. KYC alone cannot prevent money laundering. However, the protection process becomes much more effective when combined with AML policies. In the KYC system, institutions identify customers. This allows them to more easily detect suspicious transactions.
During the AML process, transactions deemed suspicious are monitored and reported. If deemed suspicious, legal action is taken. KYC enhances the effectiveness of AML in preventing money laundering. Without KYC, the AML process would be impossible.
Thanks to Jeton‘s robust KYC policies, a seamless AML process is implemented. This ensures that corporate and individual customers are always safe.
What Is KYC-AML for Companies?
Businesses should participate in KYC and AML processes for legal compliance and reputation management. During the KYC process, company identities are verified. Address and financial information are verified. This creates a corporate risk profile.
Transactions conducted through companies with fake identities and fraud attempts can be prevented from the outset. KYC is a mandatory practice for banks, fintech companies, cryptocurrency exchanges, and insurance institutions.
The AML process is activated by providing data about the business during the KYC process. This information is used to monitor and identify suspicious transactions. Necessary legal procedures can be implemented. Thanks to the AML process, businesses can be protected from criminal penalties. Furthermore, they can operate in compliance with international standards.
Through the AML process, businesses can also gain trust with their business partners. Jeton is here to protect your business from financial risks and implement long-term, sustainable, and secure financial solutions.
Wrapping Up
In the ever-evolving world of digital finance, KYC (Know Your Customer) and AML (Anti-Money Laundering) are more than just regulations—they’re the backbone of secure and transparent transactions.
At Jeton, we take compliance seriously to ensure every user enjoys a safe and seamless financial experience. With Jeton Wallet and Jeton Card, you can make transactions confidently, knowing that your identity and funds are protected.
Ready to experience secure, global payments with ease? Download the Jeton app today on the App Store or Google Play and take full control of your digital finance journey. One app for all needs is here for you!
