KYC vs AML: Understanding Their Roles in Modern Compliance

18th March 2026

In today’s financial world, compliance isn’t just a box-ticking exercise, it’s a critical safeguard against fraud, money laundering, and reputational damage. Two terms often used interchangeably are AML (Anti-Money Laundering) and KYC (Know Your Customer). While they’re closely connected, they serve distinct purposes. Understanding the difference can be beneficial for businesses and customers alike.

What is AML?

Anti Money Laundering (AML) is an umbrella term referring to laws, regulations and individual procedures implemented to disrupt and prevent the illegal flow of money. Key aspects of AML include:

• Watchlist screening and ID verification
• AML Risk Assessments
• Transaction monitoring
• Staff training and AML policies
• Policy review and updates
• Suspicious Activity Reports (SAR)
• Global frameworks and regulations – such as EU AML Directives, the Financial Action Task Force and the UK Money Laundering Regulations 2017.

What is KYC?

KYC is a key aspect of AML, namely the process of verifying your client’s identity and confirming they are who they say they are. This involves understanding and monitoring the level of risk they bring.

• Customer identification and the authentication of identity
• Risk assessment and management
• Watchlist and sanction screening
• Source of funds/wealth checks
• Ongoing due diligence

The Key Differences:

Know Your Customer (KYC) is the process of identifying, verifying and risk-assessing your client, to ensure you preemptively tackle potential financial crime and money laundering risks. Assessments should influence the level of Customer Due Diligence (CDD) you perform. Sanction and PEP watchlist screening and ID verification, through physical and electronic means, can confirm your customer is who they say they are and identify high risk indicators. In such higher risk scenarios, source of funds/wealth checks can be carried out. 

Regulatory guidance recommend risk assessments should be used in at the start of, and during, client and business relationships. This will identify higher risk factors, such as locations and jurisdictions, the product or service provided and potential political exposure. KYC does not end after onboarding, firms should consider continuously monitoring customer activity to detect unusual or suspicious patterns that could indicate fraud, money laundering, or financial crime. 

Anti Money Laundering (AML ) refers to the laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds. AML legislation and frameworks require businesses and institutions to undertake KYC procedures. Firms are also expected to assess client and business relationship risks, monitor customer activity and report suspicions to authorities.

AML procedures in business can look different depending on risk appetite and services provided, but common themes include staff training and cultivating a culture of compliance. Documentation and oversight foster accountability and efficient escalations. Suspicious Activity Reports (SARs) form a key part of regulatory obligations, while ongoing monitoring of customer behaviour and transactions helps identify unusual or suspicious activity. Regular policy reviews can help maintain a scalable compliance framework.

Useful links and resources:

• For Due Diligence templates for potential clients, see here
• For more information on a Risk based Approach and what this involves, see our quick guide.
• See HMRC’s guidance on customer and your responsibilities here.

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