Feb 19, 2026
KYC vs AML: What's the Difference and Why It Matters for EU Businesses
KYB and KYC Verification
Audit-readiness
If you have heard the terms KYC and AML used together, sometimes interchangeably. And wondered: are they the same thing? Is one part of the other? And what's the difference in practice?
You're not alone in finding this confusing. The relationship between KYC and AML isn't always explained clearly, and the consequences of misunderstanding it can be significant. In 2024 and 2025 alone, EU regulators have handed out multimillion-euro fines to businesses that got it wrong, from a €9.2 million fine by Germany's BaFin for systematic suspicious activity reporting failures, to a €3.5 million penalty against Revolut by the Bank of Lithuania for deficiencies in AML procedures.
This article is here to clear it all up.
The Short Answer: KYC Is Part of AML
Before we go deeper, here's the clearest way to think about it:
AML (Anti-Money Laundering) is the entire framework. It's the full set of laws, processes, internal controls, and obligations that regulated businesses must put in place to detect, prevent, and report money laundering and terrorist financing.
KYC (Know Your Customer) is one essential component of that framework. It's the process of identifying and verifying who your customers are, and understanding their risk profile, before and during a business relationship.
Put simply: you cannot have a functioning AML programme without KYC. But KYC alone is not AML.
What Is AML?
Anti-Money Laundering refers to the broader legal and operational framework designed to prevent criminals from disguising illegally obtained funds as legitimate income. In the EU, the regulatory basis for AML has been built through a series of Anti-Money Laundering Directives (AMLD), starting with the first directive in 1990.
The EU has now moved to an even more significant overhaul of its AML framework. In 2024, the EU adopted Regulation (EU) 2024/1624, known as the Anti-Money Laundering Regulation (AMLR), which creates a single rulebook directly applicable across all Member States.
At the same time, Regulation (EU) 2024/1620 established the Anti-Money Laundering Authority (AMLA), a new EU-level supervisor headquartered in Frankfurt that commenced operations on 1 July 2025. By 2028, AMLA will directly supervise up to 40 selected high-risk, cross-border financial institutions operating in six or more Member States.
An AML programme typically includes:
Risk assessment: identifying and documenting the money laundering and terrorist financing risks specific to your business
Customer Due Diligence (CDD): gathering, verifying, and monitoring information about customers (this is where KYC lives)
Ongoing transaction monitoring: watching for unusual or suspicious patterns in transactions
Suspicious Activity Reporting (SAR): reporting suspicions to the relevant Financial Intelligence Unit (FIU)
Record-keeping: maintaining documentation that supports your audit trail
Internal policies, controls, and training: ensuring staff understand their obligations
The international standard-setting body for AML is the Financial Action Task Force (FATF), established in 1989 at the request of the G7. FATF issues 40 Recommendations that form the global baseline for AML frameworks, which the EU and its Member States are expected to implement. The EU's regulatory framework, including the AMLR and AMLD6, is built to align with FATF standards.
What Is KYC?
Know Your Customer is the process through which regulated entities identify and verify the identity of their clients, and assess the risk those clients may pose. It's a mandatory, structured intake and ongoing review process, not just a one-time ID check.
Under the EU's AMLR framework, KYC is formally referred to as part of Customer Due Diligence (CDD), and it operates at three levels:
1. Standard CDD
Applied in most ordinary business relationships. This involves verifying the customer's identity (name, address, date of birth, and for companies, beneficial ownership structure), understanding the purpose and nature of the business relationship, and conducting ongoing monitoring.
2. Simplified Due Diligence (SDD)
Applied when the risk associated with a customer or transaction is genuinely low, for example, when dealing with a regulated financial institution or a company listed on a recognised stock exchange. Importantly, SDD doesn't mean no due diligence; it means a proportionate reduction in the intensity of checks.
3. Enhanced Due Diligence (EDD)
Required when the risk is higher. This includes situations involving Politically Exposed Persons (PEPs), transactions from high-risk countries, complex ownership structures, or any situation that by its nature presents a higher risk of money laundering. EDD involves deeper scrutiny, verifying source of funds, source of wealth, obtaining senior management approval, and conducting more frequent monitoring.
Under the new AMLR, payments of €10,000 or more require full CDD, and CDD is also required for cash transactions of €3,000 or more in certain circumstances.
Notably, Article 26 of the AMLAR framework introduces the concept of perpetual KYC (pKYC): high-risk customers must have their information updated at least every year, and low-risk customers at least every five years, with ongoing monitoring required at higher frequencies depending on risk factors.
KYC vs AML: The Key Differences at a Glance
KYC | AML | |
What it is | A process | A framework |
Scope | Identity verification and risk assessment of customers | The full spectrum of anti-financial crime obligations |
When it applies | At onboarding and throughout the customer lifecycle | Continuously, across all business operations |
Outputs | Customer risk profiles, verified ID records | SARs, internal risk assessments, transaction monitoring alerts, audit trails |
Who owns it | Compliance/onboarding teams | Compliance function, MLRO, senior management, the board |
EU legal basis | AMLR (EU) 2024/1624, CDD provisions | AMLR, AMLD6, AMLA Regulation, FATF Recommendations |
The clearest way to remember the distinction: KYC tells you who you're dealing with. AML tells you what to do with that information, and what to do if something looks wrong.
Why This Distinction Matters
Understanding where KYC ends and AML begins isn't just an academic exercise. It has real operational implications.
A business that treats KYC as the entirety of its AML obligations is exposed. Verifying a customer's identity at onboarding is necessary, but it's not sufficient. An effective AML programme requires you to keep monitoring that customer over time, flag unusual transactions, update their risk profile when circumstances change, and file a SAR when suspicion arises. Failing to do that, even if your initial KYC was perfect, can still result in regulatory action.
Who Does EU AML/KYC Apply To?
A common misconception is that AML and KYC obligations are only for banks. Under the current EU framework, and increasingly under the AMLR from 2027, obliged entities include a much wider range of businesses:
Credit and financial institutions
Payment institutions and e-money institutions
Crypto-asset service providers (CASPs), a growing focus area
Insurance companies (for life and certain investment products)
Real estate agents and professionals
Lawyers, notaries, accountants, and auditors
Trust and company service providers
Gambling service providers (with specific CDD thresholds under AMLR)
Dealers in high-value goods
The AMLR also extends scope to football clubs and crypto-asset service providers under its expanded definition of obligated entities, reflecting where regulators have identified new money laundering risks.
If your business falls into any of these categories, you are legally required to have both a KYC process and a broader AML programme in place.
The Interplay: How KYC Feeds Into AML
Think of KYC as the foundation on which your entire AML programme is built. Without knowing who your customer is and what risk they present, you cannot:
Set the right level of ongoing monitoring intensity
Identify when transaction behaviour is inconsistent with what you'd expect
Determine when Enhanced Due Diligence is required
Make an informed decision about whether to file a SAR
Demonstrate to a regulator that your controls are proportionate and risk-based
The FATF's risk-based approach, which underpins both the EU's AMLR and AMLD6, requires that the resources and rigour you apply to AML controls are proportionate to the actual risks you face. KYC is how you identify and document those risks at the customer level.
This is also why regulators are moving towards perpetual KYC, a model where customer information is updated continuously or event-driven (e.g., triggered by a change in business activity or a negative news alert), rather than just during periodic scheduled reviews. The AMLR's requirement for annual reviews of high-risk customers reflects this direction of travel.
What Good Practical Compliance in the EU Looks Like:
For businesses operating in the EU, a well-structured AML/KYC programme in 2025 should include:
At onboarding: Verified identity for all customers, beneficial ownership identification (to the ultimate natural person), source of funds checks proportionate to risk, PEP and sanctions screening against up-to-date lists, and a documented risk rating.
Ongoing: Transaction monitoring calibrated to the customer's expected profile, event-driven KYC refresh triggers (e.g., change of beneficial owner, negative news, regulatory event), annual reviews for high-risk customers and five-yearly for low-risk.
Governance: A designated Money Laundering Reporting Officer (MLRO), documented policies and procedures, regular staff training, and a clear escalation path for suspicious activity.
Audit-readiness: Complete, well-organised records that can be produced on request during a regulatory inspection, including the rationale for risk decisions, not just the outcomes.
The EU's new framework under AMLA and the AMLR signals that regulators will increasingly scrutinise not just whether controls exist, but how well-structured and documented they are. The quality of your audit trail is becoming as important as the controls themselves.
About SpeedyDD
At SpeedyDD, we work with complex and regulated businesses to build and maintain audit-ready compliance programmes. We understand that for many organisations, whether in financial services, real estate, legal, or crypto, staying on top of KYC and AML obligations is genuinely challenging, especially as the EU regulatory landscape continues to evolve with the AMLR, AMLA, and AMLD6 on the horizon.
Our mission is to make compliance practical, not paralysing. We help businesses design proportionate KYC processes, build the documentation frameworks that underpin AML programmes, and maintain the kind of clear, organised audit trail that regulators expect. If your business operates in a regulated sector in the EU and you want to feel genuinely confident about your compliance posture, get in touch with the SpeedyDD team.
Frequently Asked Questions
What does KYC stand for?
KYC stands for Know Your Customer. It refers to the process by which regulated businesses verify the identity of their clients, assess their risk profile, and monitor the relationship over time. It is a mandatory component of anti-money laundering compliance.
What does AML stand for?
AML stands for Anti-Money Laundering. It refers to the full framework of laws, regulations, internal controls, and procedures that businesses must implement to detect, prevent, and report money laundering and terrorist financing.
Is KYC the same as AML?
No. KYC is one part of an AML programme, specifically the part that deals with identifying and assessing customers. AML is the broader framework that also includes transaction monitoring, suspicious activity reporting, record-keeping, and internal governance.
What is CDD and how does it relate to KYC?
Customer Due Diligence (CDD) is the EU regulatory term for the process of identifying, verifying, and monitoring customers. KYC is the industry term for the same concept. In legal texts like the EU's AMLR, CDD is the operative term; in practice they are used interchangeably.
Who is required to comply with AML and KYC in the EU?
Under the EU's Anti-Money Laundering Regulation (AMLR) 2024/1624, a wide range of "obliged entities" are required to comply, including banks, payment institutions, crypto-asset service providers, real estate agents, lawyers, notaries, accountants, gambling service providers, and others.
What is a PEP in AML?
A PEP (Politically Exposed Person) is an individual who holds or has held a prominent public position, such as a head of state, senior politician, senior judicial official, or military officer, and whose position may make them more susceptible to bribery or corruption. EU AML regulations require Enhanced Due Diligence for PEPs, including their family members and close associates.
What is AMLA and when does it become operational?
AMLA is the Anti-Money Laundering Authority, established under Regulation (EU) 2024/1620. It is headquartered in Frankfurt and commenced operations on 1 July 2025. By 2028, it will directly supervise selected high-risk financial institutions operating across six or more EU Member States.
What is the EU's AMLR and when does it apply?
The Anti-Money Laundering Regulation (Regulation (EU) 2024/1624) is the EU's new single rulebook for AML/KYC obligations in the private sector. It applies directly across all Member States, without national transposition, from 10 July 2027.
What is perpetual KYC (pKYC)?
Perpetual KYC refers to a model of continuous, event-driven customer due diligence rather than periodic scheduled reviews. Under the AMLAR framework, high-risk customers must have their information updated at least annually; low-risk customers at least every five years, with ongoing monitoring required between updates based on risk factors.
What is a Suspicious Activity Report (SAR)?
An SAR (also called a Suspicious Transaction Report or STR in some jurisdictions) is a report filed by a regulated entity to its national Financial Intelligence Unit (FIU) when it suspects that a transaction or customer relationship may involve money laundering or terrorist financing. Filing SARs is a legal obligation under EU AML law, failure to file when suspicion arises is a compliance breach in its own right.
Do AML and KYC apply to crypto businesses in the EU? Yes. Crypto-asset service providers (CASPs) are explicitly listed as obligated entities under the AMLR. They are required to implement full KYC/CDD processes, conduct ongoing monitoring, and comply with the Transfer of Funds Regulation, which requires detailed originator and beneficiary information to accompany crypto-asset transfers.