AML - Anti Money Laundering and KYC - know your customer.
AML - anti-money laundering policy. This is a certain set of measures, which are followed by legal persons to fight illegal financial activity. AML policy includes identification (KYC), storage and exchange of user information between organizations and agencies.
Banks, exchanges and investment funds check businesses if they notice predominantly cash operations, holding money at different banks, investing through brokers and buying cash instruments.
KYC is a principle of operation that monitors customer identification through the collection of information. You are asked for passport details when you take a loan from a bank, make a deposit or just open a card, set limits on transfers - all this is KYC.
Banks and exchanges use KYC to define a portrait of their customers, identify the user (passport data, information about assets), track transactions, collate data about the quantity and content of transfers, counterparties, the customer's material resources. KYC is a special case of AML policy, the terms are not interchangeable.
Why KYC and AML are needed
Banks use KYC and AML policies when extending credit and make sure to ask for passport and phone numbers. Legitimate betting shops also use KYC: when opening an account, you need to provide passport information and confirm it at the front desk or by video. Stock exchanges and pawn shops have similar requirements. Depositors don't lose money, and national governments fight illegal money trafficking.
In blockchain, thanks to KYC and AML policies, customers get a fast withdrawal of currency into real money, legitimacy of cryptocurrency and security of transactions. The user knows: the token that has come to him or her has not been used in illegal procedures before.
KYC and AML are not a violation of the user's "anonymity" but a guarantee of transaction security. The client can be assured that:
- trading on the platform is safe;
- he is protected from fraud;
- he/she replenishes the account directly without any charges;
- it will be easy to restore the account in case the access is lost.
According to AML policy, the exchange verifies each user's transaction history, and it cannot be faked. This way the exchange protects itself from illegal activities and ensures the transparency of transactions. AML's policy includes monitoring and risk assessment of transactions, checking cryptocurrency for purity.
KYC and AML requirements in cryptocurrency exchanges are found when creating a personal account. To make users more willing to leave their data, the owners of the service introduce a limit on the period of withdrawal, the number of funds to deposit and withdrawal.
KYC and AML in the modern world are simply necessary, for safer work with finances on various services or exchanges. Therefore, going through the verification procedure will soon become a trivial thing.