KYC AML Guide: the Clock shows the average reeding time of the blog16 min Read


KYC AML Guide: the Clock shows the average reeding time of the blogOctober 26, 2023

Comprehensive KYC AML Guide for Fintech Companies in 2023

It is critical to remain abreast of regulatory regulations in the ever-changing fintech field. Know Your Customer (KYC) and anti-money laundering (AML) compliance is one of these critical areas. The fintech business will be worth $179 billion by 2023. This comprehensive KYC AML Guide for Fintech provides fintech companies with the knowledge and resources they need to successfully traverse the difficult world of KYC and AML as we approach 2023.

Belal Mahmoud

KYC Product Consultant

What is Anti-Money Laundering (AML)?

AML is a collection of laws, regulations, and processes used by financial institutions to combat money laundering. Following the 2008 financial crisis, regulators took steps to protect financial institutions and consumers, including anti-money laundering legislation. Effective anti-money laundering legislation and regulations are crucial to preserving the integrity of the financial system from money laundering and terrorist financing.

What is KYC?

Financial institutions are vulnerable to illicit crimes in an increasingly global economy. KYC regulations are intended to safeguard financial institutions from fraud, corruption, money laundering, and terrorist financing.

KYC in Fintech consists of multiple steps:

  • Verifying the customer’s identity
  • Comprehend the nature of the client’s business and assess the legitimacy of the source of funds
  • Determine money laundering risks

AML and KYC compliance are becoming increasingly crucial with stricter regulations, and banks and businesses are investing significant resources and effort in KYC compliance processes.

Also Read: What is the end-to-end KYC process?

This KYC AML Guide for Fintech highlights some of the legal procedures that different countries use to prevent illegal activity in their financial businesses. These entities and laws are largely intended to prevent money laundering and terrorism financing by setting stringent procedures for financial institutions, monitoring transactions, and applying fines for noncompliance. They also promote international cooperation and information exchange to more effectively tackle financial crimes.

  • Financial Action Task Force (FATF)
  • The Financial Crimes Enforcement Network (FinCEN) in the US
  • Bank Secrecy Act (BSA) in the US
  • The Office of Foreign Assets Control (OFAC)  in the US
  • The Financial Conduct Authority (FCA) in the UK
  • 4th, 5th & 6th AML Directives EU
  • The updated Markets in Financial Instruments (MiFID-II) Directive
  • The Financial Services Agency (FSA) of Japan
  • The Australian Transaction Reports and Analysis Centre (AUSTRAC)
  • Office of the Superintendent of Financial Institutions (OSFI) in Canada
  • Monetary Authority of Singapore (MAS)
  • People’s Bank of China (PBOC)
  • Dubai Financial Services Authority (DFSA)

Also Read: What are Designated Non-Financial Businesses and Professions (DNFBPs)?

Key Updates and Changes in KYC/ AML Regulations in 2023

This KYC AML guide for fintech reports some of the key changes in KYC/AML regulations

Economic Crime and Corporate Transparency Bill The government can quickly impose restrictions. They can set up a foreign company registry to prevent overseas criminals from using UK assets to launder money.
Expansion of KYC Requirements KYC rules have been extended to non-financial institutions, including real estate, legal, and virtual asset management services.
Data Privacy and Security Strict data privacy and security requirements to ensure that KYC information is only used for the intended purpose.
Focus on Cryptocurrency and Digital Assets More attention is paid to cryptocurrencies and digital assets with the introduction of stricter AML controls.
Prohibition of anonymity A new ban on the use of anonymous accounts or wallets within the cryptocurrency sector to provide greater transparency.
Transaction Thresholds Transaction thresholds will be introduced in the cryptocurrency space, transferring higher value requires customer identification.
Travel rules for VASPs Recognition of travel rules for VASPs, and mandatory transmission of information to the sender and receiver for significant cryptocurrency transactions.
Regulation of DAO and DeFi code Extending AML regulations to Decentralized Autonomous Organizations (DAOs) and Decentralized Finance Platforms (DeFi) platforms offering crypto-asset services.
NFT Platforms Consider AML regulations for NFT platforms to handle transactions involving valuable digital assets.
MiCA Regulation AML regulations require stablecoin issuers to implement AML controls and maintain transparency about their reserves.
U.S. Anti-Money Laundering Act (AMLA) The main changes in the U.S. within the AML framework, with an emphasis on identifying ultimate beneficial owners (UBOs) and updating customer information periodically.
AMLD 6 Incorporation of UK AML rules into the EU’s Sixth Anti-Money Laundering Directive, including implementation of the FATF’s Travel Rule.
Three-Year Action Plan for Combating Money Laundering Violations and Crimes To combat money laundering, China has announced a “Three-Year Action Plan for Combating Money Laundering Violations and Crimes (2022-2024)” that will run from January 2022 to December 2024.

Challenges in Fintech

The KYC AML guide for fintech investigates some of the challenges that fintech is facing and possible solutions.

Data security

In 2023, the fintech industry faces around 800,000 cyberattacks annually, with annual growth set to increase. According to the IBM Cost of a Data Breach Report 2023, the global cost of a data breach in 2023 is $4.45 million, up 15% by 2020. 48% of financial attacks are initiated by malicious users, and 33% are due to human error. Phishing and compromised credentials are the top primary attack vectors at 16% and 15%, respectively. Companies must understand that they risk not just their reputation, but also their money. To avoid a potential compromise incorporate the following solutions:

Also Read: What Is Data Protection Act and Why Do Businesses Must Comply with It?

Regulatory Compliance

Regulatory compliance is a complex and ongoing challenge within the fintech sector. Regulators slapped 97 penalties totaling $189 million in the first half of 2023, primarily for compliance with AML, KYC mandates, customer due diligence (CDD), and penalty violations Fintech companies are subject to various regulations, such as GDPR, GLBA, Wiretap Act, Money Laundering Regulations, and more. The potential solution is

  • KYC AML guide can provide you with expert guidance and consultation on KYC technology buying and Vendor analysis. Also, you can hire an expert from our CAAS marketplace to get more insights into the world of KYC/AML.
  • Establish a dedicated compliance department to stay abreast of new legal issues and proactively address compliance issues.

Difficulties with Onboarding and Payment Clearance

AML procedure can make the onboarding process difficult, potentially leading to client churn. More than 68% of customers abandoned financial engagement during initial customer onboarding, highlighting a major onboarding challenge. The potential solutions are

  • Simplify the digital onboarding process to improve the user experience.
  • Implement digital KYC onboarding processes to facilitate fast and secure customer verification.

Also Read: What is Digital Onboarding and How It Works?

Fraudster Screening

Fraudsters can use fake identities to communicate or launch phishing attacks, posing a constant threat to fintech companies. Identifying and preventing fraudulent activity is essential to protecting the integrity of the fintech ecosystem. A potential solution is to

  • Use automated tools such as KYC systems and monitoring transactions to identify and prevent potential fraudulent activity.

Chargeback prevention

Chargeback Fraud is detrimental to businesses because it results in expensive fees, lost shipping, transaction processing costs, and time wasted on dispute resolution.  In 2023, premium costs are expected to reach $117.47 billion, with 86% due to ‘friendly fraud’.

  • The solution is to use refinancing prevention techniques and automated systems to monitor and analyze transactions for potential coverage risks.

Also Read: The Role of Cybersecurity in KYC and AML Compliance

The Role of AML and KYC in Fintech

Fintech companies must ensure full compliance with KYC and AML requirements due to difficult regulatory constraints. Companies dealing with credibility and financial performance must comply with legal standards by implementing KYC and AML regulations. These regulations safeguard both consumers and financial institutions. They aid in the prevention of crimes such as identity theft, fraud, and money laundering.

As part of the compliance process, fintech companies must know their customers and follow other anti-money laundering processes. Companies must guarantee that they meet local (and, in some cases, global) customer due diligence requirements. This KYC AML comprehensive guide for fintech includes the following:

Comprehensive KYC_AML Checklist for Fintech


KYC is central to anti-money laundering efforts in financial institutions. This includes screening customers before providing services. For fintech, KYC adds robust ID verification with tools such as biometrics and address verification. It ensures client authenticity and reliability.

Also Read: The 4 Pillars of KYC: Building a Solid Foundation for Effective Identity Verification

Customer Due Diligence (CDD):

The CDD analyzes customers’ backgrounds to identify and identify risk levels. Check names, ID photos, and addresses for verification. It is important to have confidence in the client and their business.

Risk Assessment:

Fintech companies need to consider the risk to customers to mitigate potential threats. Factors such as financial history, geographic location, and so on are considered.

Also Read: Risk Management in KYC & Risk Management in AML


Increased appropriate screening for high-risk groups, including politically exposed persons (PEPs) and high-risk areas. Adverse media screening and exposure to negative news. Regardless of the client’s risk profile, it is mandatory to screen clients for sanctions lists, PEPs, and negative media.

Also Read: Politically Exposed Person: How PEPs Use Banking for Money Laundering?

Enhanced Due Diligence (EDD):

It is conducted with high-risk clients such as PEPs or transactions. It identifies hidden risks and protects fintech businesses from financial crimes.

A Risk-based Approach in KYC/AML:

Fintech has to deal with risks such as money laundering, compliance, and cybercrime. The risk-based approach adapts AML controls to the client’s risk level and process. PEP and adverse media screening usually determine the risk level of the client.

Transaction Monitoring

Transaction monitoring is based on criteria such as customers and beneficiaries, volume, origin, and destination. Identify unusual business transactions or activities to report money laundering and suspicious transactions.

Suspicious Activity Reporting (SAR):

Financial institutions must report suspicious activities to authorities after a thorough investigation. It is usually done through Suspicious Activity Reports (SAR) to help law enforcement investigate financial crimes.

Record Keeping and Compliance:

Keep customer information, transactions, and AML activities for a mandatory period (typically 5-7 years). Establish and regularly update AML compliance systems. Periodically evaluate the effectiveness of the AML process through audits and promptly address any deficiencies.

Technology for More Efficient KYC AML Compliance in Fintech


The global blockchain market is expected to reach $22.46 billion by 2026, at a CAGR of 72.99%. Blockchain technology eliminates the need for third parties in transactions, establishes decentralized networks, and creates a digital ledger, solving many fintech challenges

Artificial Intelligence(AI)

The AI ​​in the fintech market is estimated to reach US$42.83 billion by 2023, with a CAGR of 2.91%  expected to reach US$49.43 billion by 2028. It can enhance the KYC verification and effectiveness of the AML process.

Machine learning (ML)

It is a key fintech opportunity, facilitating adaptive AI and pattern recognition. It is used in fintech to detect and prevent fraudulent activity and examine compliance.

Big Data

Big data helps financial companies gain accurate customer insights for tailored strategies and improved user experiences. The big data fintech market is expected to reach $100 billion by 2023 due to the growing need to combat fraudulent activity. Big data is used in fintech for enhanced risk assessment through multisource analysis and the development of successful fraud detection systems.


Web3, the blockchain-based Internet, focuses on decentralization, AI, ML, and advanced user experience. Web3 is designed to revolutionize fintech: giving users more control over their data like self-sovereign identity, automating fast payment processes, and reducing errors


Mastering KYC and AML compliance is non-negotiable in the fintech sector, where innovation and regulation go hand in hand. This KYC AML comprehensive guide for fintech provides fintech companies with the knowledge and resources they need to not only meet regulatory standards but also remain ahead of the industry’s rapid evolution. As we approach 2024, keep in mind that the key to success in the area of fintech is awareness and adapting to changing conditions. Accept compliance as a chance to develop trust, ensure security, and eventually succeed in the financial technology industry.


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Belal Mahmoud
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Belal possess over 8 years experience in the KYC Identity Verification industry. He has consulted KYC solutions for over 20 new economy companies at DIFC and ADGM while ensuring a seamless technical integration and helped in jurisdictional compliance audits.