Customer Onboarding in AML and KYC

What is Customer Onboarding?

Customer onboarding is the process of verifying new clients while welcoming them into your company according to AML and KYC regulations. The process involves customer identification where the customer’s personal details and identification documents are collected to then be verified. What follows is AML and KYC checks where you screen their information against sanctions lists, PEP databases, and adverse media. The process is done to protect your company against fraud and other financial crimes. Therefore, these steps need to be completed before the account setup is finished. In this blog post, we’ll be detailing each step, giving more information about what to watch out for, and more.

Why Customer Onboarding Matters in Regulated Environments

Since this process is an important compliance requirement, your company should be paying attention to making your onboarding effective and efficient. Your onboarding process should be adhering to AML frameworks. Some of these are the FATF recommendations, the U.S. Bank Secrecy Act (BSA), and the EU’s Sixth Anti Money Laundering Directive (6AMLD). Onboarding will help you avoid onboarding high-risk clients, and this will lead to the prevention of fraud, money laundering, and terrorist financing. Otherwise, your company can be faced with regulatory fines, sanctions, and reputational and customer trust damage. 

Core Components of AML/KYC-Oriented Customer Onboarding

The customer onboarding process involves many important components.

Customer Identification Programs (CIP): The Customer Identification Programs (CIP) are one of them. These programs make sure the customer’s details like full name, date of birth, and IDs are collected and then verified.

PEP & Sanction Screening: Afterwards, these customers are subjected to sanctions and politically exposed persons (PEP) screenings using global lists from OFAC, the UN, and the EU.

Customer Due Diligence (CDD) & Enhanced Due Diligence (EDD): Your company should be conducting Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) for higher-risk clients. These solutions involve more detailed risk profiling and finding out the source of funds. 

Ongoing monitoring: Next is ongoing monitoring for all clients to make sure your company misses no red flags in terms of behavioural changes and odd transactions.

Consent management and recordkeeping: Consent management and proper recordkeeping should be implemented into every process. Compliance is therefore reached with GDPR and GLBA data privacy laws. In 2026, more than 70% of onboarding including KYC will be automated, using biometric identification, digital identity verification, and enhanced data analytics.  AI based onboarding processes will help you shorten the onboarding process without risking efficiency or safety.

Step-by-Step Onboarding Workflow  

We’ve mentioned the important parts of the customer onboarding process, let’s now walk our readers through the process step-by-step.

• The first step is customer identification and verification. As the step requires, you need to get your customer’s identity documents in this step and verify them using programs. Biometric checks have been getting used more frequently in this step, as well.
• What comes next is risk assesment, where your customers get assigned a risk level score based on criterias like geography, source of funds, and more. Once the client gets verified, you as a company should be obtaining consent for data usage and privacy compliance to make sure you’re aligning with frameworks like GDPR.
• After all the steps are completed, the customer’s account is activated, and ongoing monitoring starts. The monitoring is there to make sure there are no suspicious activities.

Differences Between Customer Onboarding and KYC

Even though one is mentioned when talking about the other, customer onboarding and KYC are not the same, but they share similarities. Onboarding describes the entire customer journey, from the moment you sign-up and your identity is verified to your account being activated and the long-term engagement that comes afterwards. The process balances both growth and compliance, making sure the user experience is comfortable while also adhering to regulatory requirements. 

KYC is part of the onboarding that focuses only on identity verification. This process is ensuring that customers are who they say they are. Onboarding is operated by both product and compliance teams since growth is part of the plan, whereas with KYC, AML or compliance team works alone. KYC occurs right before activation and it is part of regulatory control, but onboarding is the entire process that continues until the customer is fully integrated into the service. KYC deals with compliance while onboarding is ensuring both security and customer satisfaction at the same time. 

Firms create onboarding processes according to their company’s preferences while also not giving up on KYC and making sure they’re compliant, too. The results are different for every company. For example, one fintech app in the EMEA region integrates API-based onboarding while also using fuzzy matching algorithms to screen customers against international watchlists without disrupting the user experience. One other example is a digital bank in the U.S. that conducts biometric KYC checks to speed up the process and make it safer, while also using FATF aligned risk scoring models to give risk assessments in real time during onboarding. These parts support each other, creating a safe and easy onboarding process and our examples show that there isn’t only one way to do so.

What Are the Key Metrics?

The customer onboarding process doesn’t end with implementation, your company should be checking the effectiveness onboarding brings using a few metrics. The first one is the completion rate. You should be seeing the percentage of customers that finished onboarding, while onboarding time is measuring how long it takes to activate the accounts. Our experts report that 63% of customers consider the onboarding period when deciding to subscribe to a service or purchase a product.  Monitoring the number of false positives will show you how well your compliance measures are working. The EDD conversion rate shows the level of success when it comes to moving higher-risk clients through the depper verification. The audit pass rate shows how well your processes hold up when faced with regulatory reviews.

Best Practices for AML/KYC-Compliant Onboarding

So, what to include in your system to make sure you’re compliant with AML and KYC regulations? Real-time API checks are recommended since these ensure that your customer’s data is validated against global and local watchlists without waiting which help with customer satisfaction. Region-specific risk scoring will help tailor the risk levels according to the jurisdictional requirements your customer is under.

One other advice is using a tiered onboarding flow to make sure low-risk customers are getting standard checks while higher-risk customers are subjected to EDD. Audit-ready documentation is another recommendation from our Sanction Scanner team. These files are needed for regulatory inspections and itnernal reviews. Finally, your onboarding process should be linked to ongoing monitoring, making sure customers are continuously watched and no suspicious activity is allowed.

Challenges in Onboarding for Regulated Businesses

Let’s fill you in about the struggles you may face regarding the onboarding process. Since your company needs to adhere to global regulations while also making sure jurisdictional requirements are met, maintaining your compliance can be difficult. Poor or incomplete data leads to verification failures where your company can’t move on with the process.

False positives where customers are mistakenly flagged make the process longer while leaving clients frustrated. Drop-off rates being on the higher side will result in your company losing clients and revenue. Finally, relying on legacy technology to complete your processes will create integration issues for your company where verification and risk assessment will be slower. Sanction Scanner experts reports that if an onboarding process is too hard to complete, 74% of people say they would be more likely to take their business elsewhere.