AML/KYC Compliance Guide for Fintech Industry

While the steady and rapid rise of Financial Technology has brought several advantages to the table, it has simultaneously increased exposure to various financial and regulatory risks. In this article, we will explain the steps you need to take to stay compliant. 

Why AML/KYC Compliance Matters for Fintechs in 2025?

Regulatory Pressure

As the risks are evolving and multiplying, key global regulators are enforcing more and more measures against financial crimes. As can be seen in the FATF’s (The Financial Action Task Force) publication from two months ago, it has been intensifying its focus on fintechs, particularly around VASPs (Virtual Asset Service Providers). The FATF highlights that regulatory failures in one jurisdiction can have global consequences due to the fact that virtual assets are borderless. 

Consequences of Non-compliance

Aside from the regulatory pressure, other consequences of non-compliance remain very severe as well. If you fail to comply, then you are likely to face multi-million dollar fines, revocation of operating license, and loss of investor/customer trust. Let’s give an example to better illustrate the seriousness of these repercussions. According to U.S. Department of Justice, Binance and the CEO pleaded guilty to federal charges in a $4B settlement. They were involved in several violations such as failing to maintain an effective AML (Anti-Money Laundering) program, implementing KYC (Know Your Customer) procedures and filing SARs (Suspicious Activity Reports).

Importance of Trust 

Remaining compliant and staying away from negative news is a sure way to foster compliance among customers and investors. In the recent years, implementing AI-based monitoring systems has also become reassuring for clients.  

What Are AML and KYC in a Fintech Context?

What Is KYC? — KYC (Know Your Customer) allows Fintechs to verify the identity of customers, be aware of the risks that come with them and check their suitability. 

What Is AML? – AML (Anti-Money Laundering) consists of a set of policies and practices to ensure that regulated entities prevent, detect and report financial crime. 

Fintech-Specific Challenges

The first challenge stems from rapid customer onboarding, and it is especially one of the most common complaints we get from our clients. Since these institutions prioritize fast account creation and onboarding to offer better user experience, fraudulent and high-risk customers can also get in if KYC checks are not adequate. KYC for Fintechs is even more important compared to traditional financial institutions due to its limited physical presence. 

These platforms also allow high transaction volumes, which are often cross-border. Monitoring these volumes is practically impossible, so Fintechs must implement accurate monitoring systems. The difficulty of tracking these transactions has become even more amplified due to the emergence of digital currencies and cryptocurrencies. 

Fintechs often use BaaS (Banking-as-a-Service), which means relying on partner banks for core infrastructures and processing payments. Any misalignment with the BaaS provider can result in severe repercussions. Another solution that Fintechs often utilize is RegTech. These, combined with BaaS, may pose several risks such as multiple potential points of failure and scattered documentation/accountability. 

Last but not least, we must mention that the constantly evolving Fintech landscape makes it harder for firms to keep up with emerging trends and adjust their compliance programs accordingly.

Key AML/KYC Regulations Affecting Fintechs Globally

We believe starting with the FATF is a good idea, since it is a global framework that sets international AML/CFT standards. The FATF’s Recommendation 15 especially covers virtual assets and VASPs, as well as Travel Rule obligations. When it comes to regulations of smaller scope, we can start with the U.S.’ regulations. The BSA/USA PATRIOT Act, FinCEN CDD and Travel Rule are among its primary guidelines. In Europe, AMLD6 and AMLR 2025 are among the most noteworthy. The UK, on the other hand, imposes MLR 2017 and FCA Supervision. This list goes on with MAS’ AML/CFT Guidelines for Singapore, AUSTRAC’s AML/CTF Act for Australia among others. 

Core AML/KYC Obligations for Fintech Companies

1. Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)

CDD requires organizations to verify customer identities and monitor their activities, which applies to every member state of the FATF. However, you should apply EDD for high-risk customers.

2. Ongoing Monitoring

After customer onboarding, you must continuously analyze customer activity to see if there are any anomalies or unusual patterns. This obligation requires transaction monitoring, screening them against sanctions and watchlists and periodic updates to ensure customer data remains accurate. 

3. Suspicious Activity Reporting (SAR/STR)

Equally, you must file SARs as soon as you detect a red flag. These red flags could be unusual transaction sizes, cross-border transfers with no clear reasoning, or involvement of high-risk intermediaries.  

4. Recordkeeping and Audit Trails

You must also keep all the documentation concerning KYC, transaction histories and monitoring logs. These should be kept for at least 5-10 years, depending on jurisdiction. 

Special Considerations by Fintech Type

Let’s start with Digital Banks (Neobanks). These banks feature fully online onboarding, so there is an increased identity fraud risk. To address this, you should require strong eKYC, stricter beneficial ownerships for SMEs and corporate accounts and enhanced monitoring due to cross-border transactions. 

Now, on to Payment and Remittance Platforms. These platforms have high transaction volume, cross-border exposure and KYB for merchants. You may require real-time transaction monitoring, geo-risk analysis and sanctions/PEP screening for both senders and receivers. 

The next Fintech type is a category that is becoming widespread: Crypto Exchanges. The main challenges here are wallet anonymity, privacy coins, source of funds and DeFi protocols. Ensuring Travel Rule compliance, using blockchain analytics tools and monitoring for certain typologies are some of the best solutions you can use. 

Let’s continue with Lending and BNPL (Buy Now, Pay Later) platforms, where synthetic IDs and income falsification are very common. In order to avoid these, you must use CDD/KYC integrated into loan approval, source of repayment capacity checks and monitoring for fraudulent activities such as identity theft, synthetic identities and fraud rings. 

Embedded Finance and BaaS (Banking-as-a-Service) are next. The main compliance risk here is third-party onboarding liability. There are risks such as third-party onboarding liability and complexity of alignment with BaaS providers. You can implement Shared Compliance Frameworks, Centralized KYC Utilities, Continuous Vendor Monitoring, and API-based Compliance Tools in order to mitigate these risks. 

The last Fintech type we are going to mention is Insurtech. In Insurtech, fraud cases during digital onboarding are very common. In order to avoid this, you can implement Advanced Identity Verification, Document Fraud Detection, Risk-Based Customer Profiling, Fraud Analytics and Regulatory Reporting Automation.

Tools and Technologies for AML/KYC in Fintech

We have already mentioned some of the tools you can use in order to mitigate the risks that Fintechs face. Let’s elaborate upon these a little more here. 

eKYC and Digital Identity Verification: This is one of the best ways to prevent fake and synthetic IDs by using biometrics, video-KYC and liveness detection. Some reputable providers are: IDnow and IDMERIT. 

Sanction/PEP Screening: These allow you to detect high-risk customers, PEPs and blacklisted entities. Many businesses now offer AI-based Sanctions and PEP Screening such as Sanction Scanner and ComplyAdvantage.

Transaction Monitoring: Identifying suspicious transaction patterns is one of the staples of AML. With Transaction Monitoring, these are detected in real time, which will help you to act on these risks as soon as possible. Businesses such as Sanction Scanner and ComplyAdvantage are among the most successful in this field. 

Blockchain Analytics: Thanks to the tools such as crypto wallet tracing and DeFi monitoring, you can trace crypto wallet activity, detect chain-hopping and mixers and ensure that you are complying with Travel Rule. Chainalysis and Elliptic are some of the best Blockchain solution providers on the market right now. 

STR/SAR Reporting and Recordkeeping: Reporting and documentation is necessary in almost all sectors, and Fintech is definitely one of them. When a suspicious case arises, you must file SARs and STRs directly to regulators. However, you will also need to store the relevant documentation for 5 to 10 years, depending on the jurisdiction. Nowadays, luckily there are solutions such as automated STR/SAR generation and submission, cloud-based compliance storage and blockchain-based audit trails. Several businesses like Hummingbird offer these possibilities.

 Fintech AML/KYC Checklist

• CDD and EDD procedures: Customer Due Diligence and Enhanced Due Diligence help you verify several metrics such as customer identity, beneficial ownership and source of funds. 
• PEP/sanction screening: Screening against global sanctions lists and PEP databases can help you avoid high-risk entities. 
• Transaction Monitoring: Monitoring the customer activity can help you detect risks in real time and act accordingly. 
• SAR/STR processes: You must establish procedures to identify, document and escalate suspicious behavior. 
• Appointed Money Laundering Reporting Officer: Having a designated senior compliance officer that has direct access to the board and regulators can facilitate your compliance processes.  
• Integrated onboarding tools: Using eKYC platforms allows you to have compliant onboarding. 
• Transparent risk scoring: You should use automated and explainable risk scoring models in order to increase your business’ efficiency and security. 
• Ongoing staff training: Conduct regular AML/KYC awareness sessions that keep your employees up-to-date with recent changes, and case studies on emerging threats. 
• 5–10 year data retention policy: Maintain KYC and monitoring records for 5-10 years, depending on your jurisdiction. Also, use cloud storage. 
• Third-party vendor risk control: Always conduct due diligence on Fintech partners, BaaS providers and RegTech vendors. 

Which AML/KYC Regulations Apply to Fintechs?

How to Build an Effective AML Compliance Framework for Fintechs

1. Appoint an MLRO

As the first step, you should designate a senior officer responsible for AML strategy and regulatory liaison. Make sure that they have prior experience in banking, compliance or fintech regulation. 

2. Create AML/KYC policies

There are several components that you must consider when it comes to AML and KYC policies. You must be able to implement CDD and EDD during onboarding; screen your customers against sanctions, PEP lists and adverse media; monitor their transactions; file SARs/STRs. Also, have a good grasp on third-party and vendor oversight. 

3. Internal and External risk assessments

An Effective AML Compliance Framework is an ongoing process, not a single-step task. So, you should conduct both internal and external risk assessments in order to evaluate your existing systems and see your vulnerabilities. 

4. Train Employees 

You must foster a culture of compliance throughout your business. This can be done by providing role-specific AML/KYC training for all of your staff, including practical case studies and test comprehension with assessments and refresher courses. 

5. Audit-ready Records

Again, we must reiterate that you must store KYC files, monitoring data and STR documentation for 5 to 10 years. Also, using a secure cloud or blockchain-backed audit system is a good idea to further secure your documentation. 

How Can Sanction Scanner Help Your Business?

We support, and have business relationships with various industries: Fintechs, Payments, Banks, Crypto, Web3, Gambling, Gaming, Insurance, Real Estate, Law Firms, Designated Non-Financial Businesses and Professions, and more.

At Sanction Scanner, we scan your customers against more than 3000 global sanctions lists, PEP lists and adverse media data. These scans are based on their risk levels and get updated every 15 minutes. Furthermore we allow KYB and UBO checks, which facilitate verifying global companies and beneficial ownership structures. Similarly, Sanction Scanner provides Transaction Monitoring that allows you to set rules and create scenarios. These can reduce false positives by up to 96.99% and decrease your control workload by up to 80%. Moreover, these can be done seamlessly via API integration. Last but not least, we offer reporting and full compliance documentation as well.

If you are interested to find out more about what we offer, do not hesitate to contact us.