A 2022 Guide to KYC and AML Terminology From a UAE Perspective

The global regulatory landscape is diverse, requiring Financial Institutions (FIs) and Designated Non-financial Businesses and Professions (DNFBPs) to ensure compliance. The FIs and DNFBPs must keep abreast of the evolving compliance landscape to stay compliant with Anti-Money Laundering and Combatting Financing of Terrorism (AML-CFT) by following stringent Know Your Customer (KYC) procedures.

KYC procedures are an integral part of the AML and it is tempting for people to use the two terms interchangeably. Most people fail to recognise how they differ in the regulatory context. Consulting with AML consultants in Dubai is the best way to understand where to draw a line of difference between the two. In this blog, we attempt to explore these two terms and how do they relate to each other or differ from each other.  Read ahead.

What is KYC?

KYC is a mandatory requirement for FIs and DNFBPs to comply with the AML-CFT laws in the UAE. DNFBPs are Auditors, Real Estate Agents, Dealers of Precious Metals and Precious Stones and Trust & Corporate Service Providers. Through the KYC process, the businesses gather important data about prospective customers, establish their identity, and generate a risk profile. The KYC process enables businesses to verify a customer’s identity before engaging in any financial activity with them. Banks and lenders are the most frequent users of the KYC process as they are at a heavy risk of money laundering and other risks.

However, since the promulgation of the AML-CFT laws in the UAE, DNFBPs such as auditors, real estate agents, dealers of precious stones and stones, and trusts and corporate service providers are required to perform the KYC process. Strictly following the KYC process enables such entities to protect their business and reputation by doing business only with legitimate organizations and verified individuals. Carrying out the KYC process in the UAE is essential to identify any suspicious accounts with a high chance of being a money-launderer.

What is Anti-Money Laundering?

Anti-Money Laundering is an umbrella term covering a diverse set of rules and regulations that DNFBPs and FIs are required to follow to fight the menace of money laundering. The AML-CFT laws help companies to identify suspicious transactions to curb the financial crime of money laundering. AML Laws have been implemented by the UAE government to honour its commitment towards FATF to prevent laundered money from entering into the legal systems.

The AML-CFT laws also help the government to prevent individuals and entities from financing terrorist organisations and terrorist activities. FIs and DNFBPs are required to comply with AML obligations including the sanctions screening process. The sanction screening process is a critical aspect of the KYC process facilitating easy detection of financial crimes.

How do KYC and AML procedures differ?

Even though many people use KYC and AML interchangeably, the AML & KYC frameworks are different. AML-CFT and KYC processes also differ in their objectives and processes as well. We can view AML as a broader term that covers several functions. An AML framework helps FIs and DNFBPs to ensure compliance, safeguard against financial fraud by identifying suspicious transactions and prevent criminals or criminal organisations from legitimising illegal funds. Often, the AML compliance process is outsourced to AML consultants in Dubai, UAE. More importantly, AML includes the following:

  • AML / CFT Policy Controls and Procedures Documentation
  • AML/ CFT compliance assessment
  • AML Training
  • Annual AML CFT risk assessment report
  • AML software selection
  • Appointing AML compliance officer

Key differences between KYC and AML

Before proceeding to design an AML-CFT framework, FIs and DNFBPS must understand the key difference between KYC and AML-CFT procedures. Even though both concepts are interrelated, a few differences can be discerned, which are stated below. However, it is always advisable to seek the help of AML consultants in Dubai to implement a robust AML framework.

  1. In KYC, a company collects relevant customer data and evaluate it as per a diverse range of parameters. In contrast, the AML is used to establish processes and controls to combat the risk of money laundering and other financial crimes.
  2. KYC is used to help entities verify the identity of the customers. AML procedures are used to prevent individuals or criminal organisations from carrying out financial crimes such as money laundering. Under AML, financial sanctions are used to coerce a regime, constrain a target, signal disapproval, and protect the value of assets.
  3. The KYC is process is all about customer Screening, identity verification, and Risk Profiling. On the other hand, AML is an umbrella term encompassing regulations, Policies, controls, Suspicious Activity Reports (SAR) etc.
  4. KYC processes are based on a risk-based approach, which enables relevant entities to identify fake and fraudulent customers. AML helps relevant entities to ensure compliance with new regulations and adopt a robust AML-CFT compliance framework to prevent the occurrence of financial crimes.

Consult with the Best AML-CFT Consultants in Dubai, UAE

Understanding the similarities and differences between AML & KYC is important to ensure AML compliance in Dubai, UAE. However, entities are advised to hire the best AML consultants in Dubai to implement a robust AML-CFT framework within their organisation. Jitendra Chartered Accountants is one of the best AML consultants in Dubai offering bespoke compliance services. We help FIs and DNFBPs comply with the AML-CFT regulation. JCA provide services such as designing a robust AML-CFT framework, imparting AML training, AML-CFT penalty appeal services etc.