The Difference Between KYC and AML

Money laundering is a global threat, estimated at up to $2 trillion a year. Strong AML and KYC controls are vital to protect the financial system.

Know Your Customer (KYC) and Anti-Money Laundering (AML) are two closely related concepts in financial compliance, yet they are not identical. 

In an era where an estimated 2–5% of global GDP (about $800 billion–$2 trillion) is laundered annually, regulators worldwide have imposed robust AML requirements on banks, fintech startups, and other regulated firms. 

Therefore AML is a broader term, and a key component of these AML programmes is KYC – the process of verifying customers’ identities and assessing risks – but KYC vs AML is not a simple case of either/or. 

This blog post explores the difference between KYC and AML, how KYC fits into the broader AML framework, and the global standards and regulations that shape both. We’ll also look at real-world examples, technologies used for compliance, and the consequences of getting it wrong.

What is KYC (Know Your Customer)?

KYC stands for Know Your Customer, and it refers to the set of procedures that financial institutions and other regulated companies use to verify the identity of their clients and assess potential risks of illegal intentions. 

In practice, KYC involves confirming that a customer is truly who they claim to be (for example, by checking passports or other ID documents), understanding the customer’s financial profile, and evaluating their risk level. 

Key elements of KYC – often called Customer Due Diligence (CDD) – include:

• Customer Identification and Verification: Gathering and verifying personal information (name, date of birth, address, government ID, etc.) from a reliable independent source. For corporate clients, this also means identifying beneficial owners (the individuals who ultimately own or control the entity) and verifying their identities.
• Risk Profiling: Assessing the customer’s risk level for money laundering or terrorism financing. This may involve screening the customer against sanctions lists, politically exposed persons (PEP) lists, or adverse media for any red flags. Higher-risk customers (e.g. foreign politically exposed persons, or clients from high-risk countries) may trigger Enhanced Due Diligence (EDD) – deeper checks and more frequent monitoring.
• Ongoing Monitoring: KYC is not a one-time checkbox at onboarding. Firms must keep customer information up-to-date and monitor transactions for unusual patterns. If a customer’s activities or profile changes (say, sudden large transactions or new negative news), the institution should review and refresh the KYC information.

In essence, KYC is about knowing exactly who you are doing business with and making an informed judgment about whether that customer could pose a financial crime risk. 

Global standards underscore its importance. The Basel Committee on Banking Supervision has noted that “sound KYC policies and procedures are critical in protecting the safety and soundness of banks and the integrity of banking systems”. 

Effective KYC acts as the gatekeeper, preventing criminals from anonymously misusing financial channels.

Read More: The Ultimate Guide to KYC Verification
Read More: Difference between CDD and EDD

What is AML?

AML stands for Anti-Money Laundering, which refers to the broader framework of laws, regulations, and controls aimed at preventing, detecting, and reporting money laundering and related financial crimes. 

Whereas KYC is a specific process to verify identity, AML Screening is an entire programme with a wide range of measures a firm undertakes to stop illicit funds from entering or moving through the financial system. 

Key components of an AML programme typically include:

• Customer Due Diligence (CDD): This is where KYC fits in – as part of AML, firms must identify and verify customers and understand their background (as described above).
• Sanction Screening and Watchlist Screening is a fundamental part of AML compliance and plays a crucial role in differentiating between the broader scope of AML and the more targeted approach of KYC. While KYC focuses on identity verification and customer profiling, sanction screening ensures that firms do not engage in business with individuals, entities, or countries listed on global sanctions or terrorist watchlists. These include databases maintained by OFAC (US), the United Nations, the EU, and HM Treasury (UK), among others. Under the AML and KYC framework, screening against sanctions lists must occur at onboarding and throughout the customer lifecycle, especially during high-risk transactions. This demonstrates the difference between KYC and AML: KYC helps identify the customer, while AML extends that process to monitor and restrict interactions with prohibited parties.
• PEP Screening: Identifying Politically Exposed Persons (PEPs) is another essential layer in the AML screening process. A PEP is someone who holds, or has held, a prominent public position (such as a government official, judge, military leader, or state enterprise executive) and may be at higher risk for corruption, bribery, or misuse of the financial system. The difference between KYC and AML is evident here: KYC may collect information on a customer’s identity and occupation, but AML procedures take it further by flagging PEPs and applying Enhanced Due Diligence (EDD). Under AML and KYC standards, screening against PEP lists should be automated, real-time, and supported by periodic rescreening to ensure ongoing compliance, especially when dealing with international clients or high-net-worth individuals.
• Adverse Media Screening, sometimes called negative news screening, is a risk-based AML practice that involves scanning global news sources, legal databases, and online content to identify any negative information associated with a customer or related party. This may include links to financial crime, fraud, corruption, organised crime, or terrorism. Unlike traditional KYC, which verifies static identity documents, adverse media analysis aligns more closely with dynamic AML efforts by flagging reputational and behavioural risks. As part of a robust AML and KYC programme, adverse media screening helps institutions detect early warning signs before regulatory breaches occur. The KYC vs AML topic is further clarified here—where KYC builds the identity foundation, AML employs ongoing intelligence to protect the integrity of financial systems in real-time.
• Suspicious Activity Reporting: If a bank or fintech detects something fishy – say, transactions that look like structuring or funds potentially linked to crime – they are usually required by law to file a Suspicious Activity Report (SAR) with the relevant authority (e.g. FinCEN in the US, the NCA in the UK). Timely reporting shields the institution from liability and provides intelligence to law enforcement.

In summary, AML is the umbrella framework covering all steps from customer identification (KYC) to detecting and reporting suspicious activities. It is enforced through a variety of laws and regulations, and shaped by international standards. 

For instance, the Financial Action Task Force (FATF), an intergovernmental body, has issued 40 Recommendations that set global AML/CFT standards and policies for countries to follow. Those standards mandate measures such as customer identification, record-keeping, risk-based supervision, and international cooperation – all integral parts of AML efforts.

Key Differences Between KYC and AML

It’s easy to confuse KYC with AML because they work hand-in-hand. However, there are functional differences in scope and timing:

KYC vs AML: Scope

KYC refers specifically to identity verification and customer risk assessment, whereas AML covers a much wider range of activities and controls. In other words, KYC is one component of a broader AML compliance programme. 

AML includes not only KYC but also transaction monitoring, sanctions compliance, internal training, audit, and more. A helpful analogy: if AML is a defensive fortress, then KYC is the gate – an essential part of the fortification, but not the entire structure.

KYC vs AML: Purpose

The goal of KYC is to prevent fraud and money laundering at the entry point by ensuring you know your customer’s true identity and intentions. AML’s goal is more expansive: to detect and prevent money laundering through ongoing oversight of customer behavior and financial flows throughout the customer relationship. KYC is about vetting who the customer is; AML is about watching what the customer does (and making sure it’s legitimate).

KYC vs AML: Process Timing

KYC is most intensive at the onboarding stage – when a client first opens an account or starts a business relationship, the institution must perform checks before allowing any transactions. 

AML processes, on the other hand, are continuous. They apply from the start and persist through the life of the account: transactions are monitored during and after onboarding as long as the relationship exists. 

For example, a bank will verify a new customer’s identity (KYC) at account opening, but even years later it will be monitoring that account for suspicious transfers and may periodically refresh the customer’s KYC details.

KYC vs AML: Regulations

Regulators often embed KYC requirements within AML laws, but sometimes treat them as distinct obligations. 

For instance, in the United States, banks have a specific Customer Identification Program (CIP) rule under the USA PATRIOT Act, which is essentially a KYC rule. However, banks must also maintain a comprehensive AML programme as required by the Bank Secrecy Act (BSA) – which includes CIP/KYC, but also other elements like independent audits and an AML officer. In short, failing to do proper KYC means you will fail AML compliance, but one can also meet basic KYC requirements and still fall short on other AML duties if, say, you aren’t monitoring transactions or filing reports as required.

Put simply, AML and KYC are two sides of the same coin, but not the same side. KYC provides the foundation (you can’t effectively combat money laundering if you don’t even know who your customer really is), while AML encompasses the full arsenal of defenses against illicit finance. “Due to the overlap, it would be impossible to comply with AML requirements without first having proper KYC controls in place,” as one industry analysis noted. KYC fits into AML like a puzzle piece fits into the larger puzzle.

KYC vs AML: A Side-by-Side Comparison

Global Standards of KYC and AML 

Financial crime is a transnational problem, so there are global organisations and cooperative frameworks that set international AML/KYC standards. 

Chief among them is the Financial Action Task Force (FATF), which as mentioned produces the FATF 40 Recommendations – effectively the gold standard blueprint for AML/CFT measures worldwide. The FATF Recommendations cover everything from customer due diligence (Recommendation 10) and record-keeping, to suspicious transaction reporting and sanctioning countries that don’t comply. 

While the FATF itself isn’t a regulator, its guidelines “introduce standards and policies for member countries to implement to help prevent money laundering and the financing of terrorism”. Virtually all major jurisdictions’ AML laws are aligned with FATF principles, and countries are periodically evaluated by FATF or affiliated regional bodies for how well they comply.

Another key player is the Basel Committee on Banking Supervision, which issues guidance to strengthen banks’ risk management globally. The Basel Committee has emphasised that banks must include money laundering and terrorist financing risks as part of their overall risk management and prudential supervision. In fact, already in 2001, the Basel Committee released “Customer Due Diligence for Banks” guidelines, highlighting KYC as a critical element of sound banking practice. 

More recently, it updated guidelines on “Sound management of risks related to money laundering and financing of terrorism” (last revised in 2020) to foster better cooperation between AML supervisors and prudential regulators. These Basel guidelines are “consistent with and complementary to the goals and objectives of the standards issued by the FATF”, reinforcing that global bodies are working in concert.

A recurring theme in all best practice standards is the risk-based approach: firms should allocate compliance resources commensurate with the risk level of customers, products, and geographies. This means not every client is checked equally – higher-risk situations demand enhanced scrutiny, whereas lower-risk cases may allow simplified due diligence. The risk-based approach, championed by FATF and regulators worldwide, makes AML efforts more efficient and effective.

KYC and AML Regulations in Key Jurisdictions (EU, UK, US)

While global standards set the tone, local laws and regulations give them teeth. Let’s look at some major jurisdictions:

European Union (EU)

The EU has progressively tightened AML rules through a series of Anti-Money Laundering Directives (AMLDs). The Fourth AMLD (2015) introduced a stricter risk-based approach and requirements to identify ultimate beneficial owners and politically exposed persons. 

The Fifth AMLD (in effect 2020) expanded rules to areas like cryptocurrency exchanges, prepaid cards, and added transparency measures such as public beneficial ownership registers. 

The Sixth AMLD (6AMLD), effective from December 2020 (transposed by 2021), further harmonised the definition of money laundering across EU states and enumerated 22 predicate offences (underlying crimes like fraud, tax evasion, cybercrime) that count as money laundering predicate crimes. Notably, 6AMLD “aims to strengthen AML rules in the EU and place higher responsibility on regulated entities to fight financial crime”.

These evolving directives show how the EU continues to lead in harmonising AML and KYC rules across member states—illustrating the difference between KYC and AML as part of a broader compliance ecosystem.

United Kingdom (UK):

The UK’s AML laws are anchored in the Money Laundering Regulations 2017 (MLRs), which require firms to perform identity verification, assess customer risk, and monitor high-value or suspicious transactions. 

Post-Brexit, the UK retained the EU’s core standards and launched its own reforms like the Economic Crime Plan and beneficial ownership registers. Regulators such as the FCA enforce compliance, with banks like NatWest fined hundreds of millions for KYC failures. 

The AML and KYC obligations in the UK reflect a strong risk-based approach, showing how KYC vs AML plays out in enforcement: one verifies identity, the other ensures ongoing oversight.

United States (US):

The US has one of the oldest and strictest AML regimes, governed by the Bank Secrecy Act (BSA) and the USA PATRIOT Act. The “five pillars” of AML include policies, audits, training, and a dedicated compliance officer. 

KYC in the US is embedded through the Customer Identification Program (CIP) and FinCEN’s CDD Rule, which mandates identifying both customers and beneficial owners. The 2020 AML Act expanded reporting duties and created a national ownership registry. 

US enforcement is aggressive—with billions in fines for AML breaches—highlighting how AML and KYC compliance is non-negotiable, and how the difference between KYC and AML lies in preventive identity checks versus full-scale anti-financial crime controls.

Technology and Tools for AML and KYC Compliance

Meeting Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations has traditionally been a resource-intensive, paperwork-driven process—think photocopying passports, manual transaction reviews, and endless spreadsheets. 

AI technology is helping to turn AML/KYC from a laborious manual exercise into a more automated, intelligent process. Clever criminals employing sophisticated methods, AI-powered compliance tools like Binderr offer faster, more accurate detection of suspicious activity. 

That said, even the best technology must be underpinned by sound strategy and skilled staff. Regulators expect that if a firm uses automated systems, it also maintains human oversight and regularly validates that the models and tools are working as intended.

Today, however, technology is transforming how institutions approach compliance.

Digital Identity Verification

The rise of electronic KYC (eKYC) solutions allows customers to be verified remotely in minutes. Using a smartphone or computer, a customer can scan their identity document and even take a selfie for facial biometrics. Advanced identity verification providers use AI and machine learning to check the authenticity of IDs and match a person’s live photo to their ID picture.

Biometric KYC verification (facial recognition, fingerprints, liveness checks) adds an extra layer of assurance that the person is real and present. These technologies dramatically speed up onboarding – what might take days or weeks with manual document checks can be done almost instantly, with higher accuracy. 

68% of U.S. financial institutions report investing in digital identity solutions to strengthen KYC/AML compliance and combat fraud, and similar trends are seen worldwide.

Binderr enhances this process by offering AI-powered facial recognition technology and biometric verification, including liveness detection and deepfake prevention. Its system supports over 11,000+ ID document types across more than 230 countries and territories.

Automated Screening and Monitoring

Gone are the days of compliance officers manually eyeballing transaction ledgers. Modern AML systems use rules engines and machine learning to monitor transactions in real-time. 

AML solutions like Binderr automatically flag anomalies—e.g., a sudden international transfer of a large sum from an account that’s been largely inactive, or a pattern of transactions just below reporting thresholds. Similarly, name screening software checks customer names against up-to-the-minute sanctions lists (UN, OFAC, EU, etc.) and PEP databases, alerting compliance staff if there’s a potential hit. 

Machine learning models can adapt to new patterns of suspicious behavior, helping to reduce false positives and uncover complex smurfing or layering tactics that simple rules might miss. The result is a more proactive and intelligent monitoring capability that can catch illicit activity early.

Binderr AML software offers AI-powered screening to detect high risk users, which includes sanction and watchlist screening, politically exposed persons (PEPs), and adverse media, achieving a 70% reduction in false positive results. 

Binderr's platform also supports continuous AML monitoring with daily updates on new hits, maintaining updated risk profiles through scheduled checks against global sanctions lists, watchlists, and other reliable data sources.

Analytics and AI for Risk Assessment

Artificial intelligence is increasingly used to enhance risk scoring and due diligence. 

For example, AI can sift through vast amounts of unstructured data—news articles, databases, social media, to identify negative news on a client or entity (so-called adverse media screening). 

It can also help in building holistic risk profiles by correlating various data points (transactions, behavior, connections between accounts).

Binderr offers offers fully customizable risk assessments solutions tailored precisely to each firm's unique risk tolerance, with daily updates on jurisdictional risk from more than 10 sources. This dynamic risk assessment capability allows businesses to proactively manage and mitigate risks associated with their clients.

Bottom Line

AML and KYC are fundamental pillars of today’s financial services industry. While the difference between KYC and AML comes down to scope – with AML being the wide-ranging programme and KYC a critical component within it – you cannot really have one without the other. An AML and KYC compliance framework grounded in global standards (FATF Recommendations, Basel guidance) and tailored to local regulations (whether EU’s directives, the UK’s MLRs, the US BSA/Patriot Act, or others) is now a non-negotiable requirement for banks, fintechs, and other regulated firms.

The best practices involve a risk-based, technology-supported approach: knowing your customers deeply and continuously (not just at sign-up) and leveraging modern tools like digital identity verification and automated monitoring to stay ahead of criminals. As we’ve seen through examples, AML and KYC efforts protect not only the financial system at large but also the institution’s own soundness and reputation. In an age of globalised finance, compliance officers and business leaders must foster a culture where AML and KYC are seen not as a checkbox compliance burden, but as essential to the company’s integrity and success.

By understanding “KYC vs AML” and how they interrelate, professionals can better design compliance programmes that meet regulatory demands and keep financial crime at bay. The cost of complacency is simply too high – from billion-dollar fines to potential jail time and shattered trust. Conversely, robust AML and KYC practices help build customer trust and open doors to smoother operations (for instance, easier partnerships with correspondents and less intervention from regulators). In short, embracing strong AML/KYC controls is both a regulatory imperative and a smart long-term strategy for any player in the financial sector.

AML and KYC compliance is a journey, not a destination – as financial crime evolves, so too must our defences. With a confident, well-informed, and technologically empowered approach, financial institutions can stay one step ahead, ensuring that they remain compliant with the law and contribute to the global fight against money laundering and terrorist financing.