KYC and AML Regulations: The Regulatory Framework Explained

The Relationship Between KYC and AML

Inside the AML (Anti-Money Laundering) framework, KYC is the main compliance instrument. AML is the legal regime that sets the duties. KYC is the operational process firms run to meet those duties.

AML compliance cannot exist without KYC. Strip away AML and KYC has no reason to exist.

Evolution of AML Regulation in Europe

First AML Directive (1991)

It laid the base of the European prevention system: a duty to identify customers and to report suspicious transactions. Financial institutions were the main audience.

Second AML Directive (2001)

Scope widened to non-financial professionals (lawyers, accountants, notaries). After the 9/11 attacks, international cooperation tools were also tightened.

Third AML Directive (2005)

The risk-based approach arrived here: firms must scale control intensity to the risk of each customer and each transaction.

AMLD4 — Fourth Directive (2015)

Major shifts:

• A duty to identify the beneficial owner of transactions.
• Central beneficial ownership registers created.
• Sanctions toughened.
• Online gambling platforms brought in.

AMLD5 — Fifth Directive (2018)

A rewrite for the digital economy:

• Scope stretched to cryptocurrency exchanges and virtual wallet providers.
• Beneficial ownership registers opened to the public.
• Enhanced due diligence made mandatory for deals with high-risk countries.
• Tighter controls on prepaid cards and anonymous electronic money.

AMLD6 — Sixth Directive (2020)

Criminal enforcement was hardened:

• A shared definition of money laundering offences across the EU.
• Corporate criminal liability (not only individuals).
• Prison terms of at least 4 years for money laundering offences.
• Wider predicate offences (tax crimes, cybercrime).

AML Package 2024-2025

The largest overhaul so far:

• Creation of AMLA (Anti-Money Laundering Authority), a new European authority based in Frankfurt.
• An AML Regulation that applies directly in every member state (no transposition needed).
• A EUR 10,000 limit on cash payments across the EU.
• Duties extended to fresh sectors: luxury goods dealers, football clubs, crypto-asset agents.

UK Regulatory Framework

After Brexit the UK AML regime runs on its own. It still tracks international standards closely:

• Money Laundering Regulations 2017 (as amended in 2019 and 2022) — the core statutory instrument.
• Proceeds of Crime Act 2002 (POCA) — makes money laundering a criminal offence and builds the Suspicious Activity Report (SAR) regime.
• FCA Handbook — spells out detailed KYC and AML requirements for financial services firms.
• HM Treasury sanctions lists — every KYC process must screen them.
• Office for Professional Body Anti-Money Laundering Supervision (OPBAS) — oversees professional body supervisors.

The National Crime Agency (NCA) takes in Suspicious Activity Reports (SARs) from regulated firms and analyses them.

US Regulatory Framework

US AML law is stacked in layers:

• Bank Secrecy Act (BSA, 1970) — the foundational AML statute; financial institutions must keep records and file reports.
• USA PATRIOT Act (2001) — widened KYC duties and brought in Customer Identification Programs (CIPs).
• FinCEN CDD Rule (2016) — covered financial institutions must identify and verify beneficial owners.
• Corporate Transparency Act (2021) — requires beneficial ownership reporting to FinCEN.
• OFAC sanctions — run by the Treasury Department; screening is mandatory.

MiCA Regulation and Crypto-Assets

The Markets in Crypto-Assets (MiCA) Regulation, live since 2024, has aligned crypto-sector duties across the EU:

• Every crypto-asset service provider needs authorisation.
• Full KYC on all transactions (no minimum thresholds).
• Crypto-asset transfer traceability (Travel Rule).
• Capital and governance requirements for exchanges.

Exchanges, custodians, DeFi platforms with centralised components, and stablecoin issuers are hit directly. The FCA registration regime in the UK imposes similar duties. FinCEN treats US crypto exchanges as MSBs under the BSA. See crypto solution.

How Regulations Affect Your Business

If you are a fintech

You need:

• Full KYC at onboarding for every user.
• Ongoing transaction monitoring.
• A documented compliance programme.
• A designated compliance officer (MLRO in the UK).

See fintech solution.

If you sell high-value goods

You need:

• Identity checks on cash deals above GBP/EUR 10,000.
• Source of funds checks once the risk profile calls for them.
• Retention of compliance records.

See luxury solution.

If you operate a marketplace

You need:

• Seller checks to block fraud.
• Transaction monitoring for suspicious activity.
• A procedure for reporting unusual transactions.

See marketplace solution.

Frequently Asked Questions

When does AMLA become operational?

AMLA will be fully operational in 2026. The new AML Regulation will apply directly, with no national transposition required in EU member states.

Does MiCA apply to DeFi?

MiCA covers centralised crypto-asset service providers. Truly decentralised protocols (no intermediary) sit outside its scope for now, though that position is under review.

Does the UK have stricter requirements than the EU?

In some respects. The UK SAR regime demands a report even when suspicion sits below the threshold of certainty. The FCA has also taken an aggressive enforcement stance, above all with crypto firms, where a large share of registration applications have been refused.

Can I use a KYC provider based in another country?

Yes, if the provider meets the rules that apply in your jurisdiction and you can show the controls match those required locally. For a full list of who must comply, see our guide on regulated entities.

---

Need to align your compliance with the latest regulations? The team at Joinble helps you put KYC in place that satisfies current rules and those still coming.