To understand the difference between AML, CFT, and KYC, we first need to know the meaning of these abbreviations.
AML (Anti-Money Laundering): Set of standards, regulations, and laws that aim to prevent money laundering activities and advanced financial crimes. These regulations and compliances could involve identity verification of clients, PEP status, sanctions screening, transaction monitoring, and other precautions. AML is the broader level of KYC and CFT.
KYC (Know Your Customer): KYC rules are the steps for financial institutions and banks to verify their customer and their identity.
CFT (Combating the Financing of Terrorism): Set of government rules, laws, regulations that limit financial sources and funds that flow to terrorism. Governments could track sources of money and transactions to find related activities.
There are slight differences between AML, CFT, and KYC. AML and CFT are broader standards that financial institutions should take precautions for money laundering, financing terrorism, and other financial crimes. On the other hand, KYC is the step that financial institutions and banks utilize to verify their customer identity. This verification could be physical, or it could be digital identity verification. Banks use AML, CFT, and KYC compliances to keep their institutions safe. Failure to comply with these rules may result in large penalties for banks.