Everything you need to know about KYC and AML

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KYC and AML: KYC and AML are two crucial identity check systems used by banks and non-banking financial institutions. It is very important for financial institutions to keep their in check on their customers so they don’t use the money for any illegal activities and to avoid money laundering. Everyone should be aware of KYC and AML, so they don’t make any mistakes while operating with any financial institution.

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In this blog, we will brief you about the functions, working, and differences between KYC and AML. This blog will also help you in preparation for banking exams as it is important for the bank’s functioning.

What is KYC?

KYC stands for Know your customers. The main motive behind KYC is to check the identification of the customers. It is used to verify if the customer is really what they are told to be. It helps banks and non-banking financial institutions in identifying people who are using services with a fake identity. Not only banks, but many government organizations have also made KYC compulsory to avoid any kind of fake transactions or illegal activities.

KYC not only helps the institutions but also makes your money secure as the responsible institutions already have your details. It makes it hard for scammers to take money illegally or to do any scam.

What is AML?

AML stands for Anti Money Laundering. This system is only used by banks and non-banking financial institutions. AML is basically used to stop terror funding and transfer of money in order to perform any criminal activities and serious crimes like human trafficking.

Difference between KYC and AML

Although, KYC and AML have different definitions and working procedures AML is a very large umbrella and also covers KYC procedures. Even after being the indirect part of each other both procedures have various differences. The differences between KYC and AML are as follows:

  • AML covers all the procedures and techniques that are used to prevent money laundering and the transfer of black money while KYC only refers to the verification of the customer.
  • As AML covers a larger area, it refers to the monitoring of not only customer identification but also monitors money transactions and further procedures. While KYC only monitors and verifies the identification of the customers.
  • AML is specifically used in banks and non-banking financial institutions, whereas KYC is used by various government organizations to avoid any wrong usage of their service.

How do KYC works?

Whenever a customer takes the services of a bank or any other financial institution. The first procedure done by the institution is KYC (Know your customer). In KYC, banks or other institutions ask for a list of documents in order to prove your identity, residence, age, and your occupation. We have provided below the documents that are generally required for the KYC.

For Identity proof

  • Aadhar Card
  • PAN Card
  • Driving License or Voter ID Card
  • Passport

Required documents for residential proof

  • Electricity Bill
  • Ration Card
  • Telephone Bill
  • Bank account statement

For Business account

  • Authority papers of the business
  • Business registration paper
  • Telephone bill of the registered number
  • Copy of the letter of PAN allotment

How do AML works?

Anti-money laundering refers to every procedure and technique used to prevent, monitor, and identify any kind of money laundering. There is no specific AML system every organization has its own set of procedures to implement AML. Although, there are some basic procedures that fall under the umbrella of AML. They are as follows:

  • Verifying the identity of the customer
  • Monitoring and preventing entry of black money into the institution
  • Tracking the transaction and funding of illegal money
  • Preventing money laundering and withdrawal of the black money.

We hope this blog gave you a brief understanding of KYC and AML. To read more such articles, visit the Oliveboard website.

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Frequently Asked Questions

What does KYC stands for?

KYC stands for Know your customers.

What is the use of AML?

AMLs are used to prevent the cases of money laundering.