Know-your-client and Anti-money-laundering (AML/KYC)

Written by Steve Miller

Introduction

Know Your Client (KYC) and Anti-Money Laundering (AML) regulations are requirements of financial services providers in order to know who their customers are and understand where their money comes from in the course of doing business with them.

Complying with KYC regulations entails financial services companies verifying the identity of companies and individuals prior to starting a relationship with them, ensuring they are who they say they are and not trying to mask their identity to illicitly access the financial system. Common targets of KYC regulations are criminal and terrorist organizations along with countries considered to be rogue actors such as North Korea and Iran.

AML regulations focus on the source of funds flowing into the financial system and the use of funds once they have entered. To confirm the funds were earned legitimately and not the result of criminal activity.

Funds flowing out of companies are watched as well. To ensure they are not supporting organizations flagged for the watch lists they are required to monitor to comply with AML regulations. A common example is scrutinizing charitable organizations potentially transmitting money earned from donations to support terrorist or other blacklisted institutions on the watchlists.

Suggested Reading

KYC, AML, and Cryptocurrencies by Katalyse

There’s a Huge Opportunity for Everyone in Crypto, It’s Called KYC/AML by Bruce Silcoff