The cryptocurrency market, still in its early stages, grapples with numerous imperfections, particularly in terms of regulations. Cryptocurrencies are frequently used to circumvent regulatory frameworks, enabling schemes that transform illicitly obtained funds into seemingly legal and “clean” assets. In response to these challenges, regulators have introduced mandatory know-your-customer (KYC) and anti-money laundering (AML) procedures for centralized exchanges, wallet providers, crypto issuers, and financial service providers within the crypto sector. In this article, we will explain the concepts of anti-money laundering and know-your-customer in the crypto space
What is AML and KYC?
AML basically covers how crypto companies align their customers, processes, and technology to detect and prevent money laundering schemes. For example, AML check BTC online swiftly identifies whether bitcoins from a specific wallet are linked to any illegal schemes or financial crimes. AML includes:
- KYC
- Monitoring of transactions
- Recording
- Risk assessment
- Due diligence.
Being a part of AML, KYC is a check that a company (crypto exchange) mandatory asks its clients to undergo during onboarding, just to know who their customers are.
AML vs KYC
Here is a comparison to better understand KYC and AML:
Process | Purpose | Verification | Scope | Implementation |
KYC | Designed to verify the identity of individuals or entities engaging in financial transactions | Obtaining information such as names, addresses, and official identification documents to confirm the identity of users | Preventive measures, aim to ensure that the individuals or entities involved in transactions are who they claim to be | Employed by financial institutions and crypto exchanges to comply with regulatory requirements and reduce fraud and identity theft risks |
AML | Preventing the illegal generation of income through money laundering | Assessing the risk related to financial transactions and implementing measures to detect and deter money laundering activities | Addressing not only the identity of clients but also scrutinizing the financial transactions for suspicious activities | Require financial institutions and crypto exchanges to establish robust frameworks for monitoring and reporting suspicious transactions, and implementing risk-based assessments. |
Table: The Difference Between KYC and AML in Crypto
While KYC is an important part of AML, the main difference lies in their broader purposes. KYC is concerned with confirming the identity of users, whereas AML encompasses a wider range of measures aimed at preventing and detecting activities related to money laundering and the financing of illegal activities like terrorism. Both KYC and AML measures are essential to comply with regulations and maintain the security of financial transactions.
