AML/KYC Compliance Guide for Fintech 2025

For fintech businesses, compliance isn’t simple. They have to meet KYC requirements, perform anti-money laundering (AML) screening, and take preventive measures against fraud. If they fail to do so, they can face millions of dollars in fines. 

For instance, in 2024, the UK’s Financial Conduct Authority (FCA) fined Starling Bank Limited £28.96 million ($38 million) for financial crime failings, including deficiencies in its financial sanctions screening and repeated breaches of a restriction against onboarding high-risk customers.

In this article, we’ve covered everything you need to know about KYC and AML compliance in fintech, the key differences between the two, and what fintech firms should consider when choosing a comprehensive compliance solution.

The role of AML and KYC in fintech

Know Your Customer (KYC) and other Anti-Money Laundering (AML) procedures are essential components of the broader compliance framework that fintech companies must follow to prevent fraud, meet regulatory requirements, and maintain customer trust.

Companies must ensure they follow customer due diligence regulations in the jurisdictions where they operate. This includes:

• Customer identification and identity verification
• Performing risk-based assessment 
• Ongoing monitoring (including transaction monitoring)
• Screening sanctions lists, PEP lists, and other sources

Fintech is a competitive market, with traditional institutions, tech giants, and startups all aiming to take up a dominant position.

Therefore, fintech companies have to compete for users—and this means putting effort into making onboarding as quick and effortless as possible. At the same time, fintech apps and services are targeted by criminals who use financial platforms for money laundering, fraudulent, and terrorism financing purposes. 

Main compliance challenges in fintech

Some of the main challenges the fintech sector faces include:

• Onboarding users and clearing payments. AML procedures can make the registration inconvenient, which may lead to customer drop-offs. 
• Regulatory sanctions. Fintech businesses around the globe are subject to strict AML requirements, including user verification, AML training, suspicious activity reporting, and more. Non-compliance with these obligations leads to severe sanctions.
• Screening for fraudsters. Fraudsters use fake identities to conduct transactions or launch phishing attacks to steal credentials. Fintech businesses need to stay vigilant in order to prevent bad actors in the first place.
• Chargeback prevention. In fintech, chargeback fraud increases operational costs and damages merchant relationships, while also hurting reputation and financial stability.

In short, fintech businesses must constantly balance making onboarding easy for good users while keeping bad actors out. This can be achieved, in part, through automated solutions such as Know Your Customer (KYC), AML screening and transaction monitoring, which we will discuss in the following sections.

Risk-based approach in fintech

Global regulators require fintech businesses to adopt a risk-based approach to combating money laundering. This means considering risks inherent to the sector and products that a company deals with. 

For instance, the fintech sector is considered especially vulnerable to money laundering. To mitigate these risks, fintech companies must institute an AML compliance program—a combination of safeguards that include: 

• User verification. To meet regulatory requirements, fintech businesses must identify and verify their users. This procedure is also known as Know Your Customer (KYC).
• An AML team. Depending on the jurisdiction, fintech businesses must appoint an AML compliance officer, a Money Laundering Reporting Officer (MLRO), or both. These officers are responsible for compliance, ongoing monitoring, and reporting.
• Employee training. Businesses have to educate their employees about financial crimes and how to prevent them. This can be done through classroom instruction, online classes, or other teaching methods.
• Record keeping and retention. Regulators require businesses to record and store the results of due diligence checks and other reports to provide to regulators if needed.
• Ongoing monitoring. It’s essential to monitor transactions throughout the entire customer lifecycle using a transaction monitoring solution with a built-in investigation tool and analytics to detect unusual or suspicious patterns.
• Suspicious Activity Reporting. If an employee notices any signs of money laundering, they must notify the MLRO, who then reports it to the regulator. Also, the MLRO must regularly report certain information to senior management, such as the number of detected suspicious transactions and money laundering schemes during the reporting period.

Suggested read: Complete Guide to Suspicious Activity Reports

Understanding KYC in fintech in 2025

Know Your Customer (KYC) is part of a broader AML program each fintech company should create to stay compliant and fraud-free. It’s an umbrella term for everything that a business should know about a customer. This encompasses procedures such as customer identification and identity verification.

To identify a customer, businesses usually need at least the following data:

• Name
• Date of birth
• Address

After collecting this essential information, fintech companies need to verify it. Typically, a government-issued document is used for that purpose.

Reliable KYC helps fintechs build trust, prevent fraud, ensure regulatory compliance, and streamline user onboarding—all while safeguarding their reputation and reducing risk. Let’s check out the essential components of KYC.

Risk assessment and management in fintech

Fintech companies need to establish AML risk management policies to separate customers by risk level. Depending on their risk level, customers may have to submit certain documents and go through specific monitoring processes. 

Customer Due Diligence (CDD)

Customer Due Diligence (CDD) is part of any KYC procedure. It involves verifying a customer through documents or information received from a reliable source, such as checked databases. Fintech businesses must carry out CDD at the onboarding stage before they allow users to initiate transactions.

Although CDD is the check companies apply the most, there are some situations when the money laundering risk is very low. This allows businesses to opt for Simplified Due Diligence (SDD), reducing the overall check time. On the other hand, if the situation is very high-risk, companies may need to perform Enhanced Due Diligence (EDD).

Enhanced Due Diligence (EDD)

Enhanced Due Diligence provides a greater level of scrutiny of potential business partnerships and highlights risks that cannot be detected by the standard verification procedure.

EDD is applied when users present a higher risk of money laundering or terrorist financing. For instance, if a user comes from a high-risk country, compliance officers must collect additional data on their identity. This includes sources of funds and wealth.

Sanction lists, PEPs, and adverse media screening

Companies should conduct AML screening for adverse media, global sanctions, and watchlists, such as OFAC, UN, HMT, EU, DFT, etc., regardless of the client’s risk profile. Besides that, companies should check whether their customer is a Politically Exposed Person (PEP). This process should take place during onboarding and throughout the entire customer relationship.

Suggested read: Effective Sanctions Screening: Best Practices for Preventing Financial Crime (2025)

Implementing effective KYC process for fintechs

Leveraging technology for KYC

Modern KYC processes are increasingly powered by advanced technologies like AI, machine learning, and biometrics. These tools streamline identity verification, automate document checks, and add greater accuracy and speed to risk scoring. By leveraging technology, fintechs and financial institutions can reduce manual errors, improve customer experience, and scale compliance efforts more efficiently.

Best practices for KYC compliance

Effective KYC compliance starts with thorough customer due diligence, ongoing risk assessment, and clear internal policies. Organizations should implement a risk-based approach, ensure real-time monitoring, and regularly update their procedures to align with evolving regulations. Training staff and conducting periodic audits are also key to maintaining a strong and adaptive KYC framework.

Understanding AML in fintech in 2025

AML for fintech involves a multi-layered approach combining customer (KYC) and business verification (KYB), continuous transaction monitoring, sanctions screening, robust reporting, and the use of advanced technologies to effectively mitigate money laundering risks in the fast-evolving digital financial landscape.

Suggested read: What Is Anti-Money Laundering?

AML compliance requirements for fintech

1. Establishing a robust AML compliance program

1. Fintechs must develop and maintain a written AML compliance program tailored to their business model and risk profile. This program should include policies, procedures, and controls to detect and prevent money laundering and terrorist financing.
2. Appointment of a dedicated AML compliance officer responsible for overseeing the program and ensuring regulatory adherence is mandatory.
3. Regular risk assessments and periodic independent audits or reviews of the AML program are required to ensure effectiveness and continuous improvement.

Suggested read: 6 Key Steps to a Successful Anti-Money Laundering (AML) Program

2. Customer verification and business verification

1. Fintechs must verify the identity of their customers using reliable documents (government-issued IDs, biometrics, etc.) and confirm the legitimacy of business clients by verifying registration details and beneficial ownership.
2. Risk profiling customers based on factors such as geography, transaction patterns, and customer type is essential, with Enhanced Due Diligence (EDD) applied to high-risk customers, including Politically Exposed Persons (PEPs).
3. Ongoing monitoring of customer transactions is required to identify suspicious behavior or changes in risk profiles.

Suggested read: Understanding KYB and How it Relates to KYC

3. Transaction monitoring

Transaction monitoring helps businesses build and update the risk profiles of their customers and enhance trust between affiliate financial institutions and correspondent banks. Transaction monitoring software spots unusual patterns and reviews dubious transactions made in digital or fiat currencies. 

Essentially, a transaction monitoring solution is supposed to answer the following questions:

• Is the transaction consistent with the risk profile of the customer? 
• Are the origin and destination of the transaction legitimate? 
• Is there any suspicion that the funds were obtained illegally? 

For fintech companies, an efficient transaction monitoring system is needed to easily process transactions, detect those potentially linked to criminal activities, as well as to implement their own risk matrix.

4. Reporting

1. Fintechs must file FIU reports (SARs or STRs) with regulatory authorities like FinCEN, UK National Crime Agency, or Singapore Suspicious Transaction Reporting Office when suspicious transactions are identified. Timely and accurate reporting is essential to avoid penalties.
2. Maintaining comprehensive records of customer data, transactions, risk assessments, and reports for typically 5 to 8 years is required for regulatory audits.

5. Sanctions and PEP Screening

1. Regular screening of customers and transactions against global sanctions lists (e.g., OFAC, UN, EU) is mandatory to block dealings with sanctioned individuals, entities, or countries.
2. Identification and enhanced monitoring of PEPs, who pose higher risks due to potential involvement in corruption or bribery, are required components of AML compliance.

6. Licensing

1. Fintechs engaged in money transmission, currency exchange (including cryptocurrencies), or other financial services must register with regulatory bodies such as FinCEN or EU licensing bodies and obtain necessary state licenses where applicable.
2. Compliance with state-specific money transmission laws and other financial regulations is essential for lawful operation within jurisdictions.

7. Use of technology and automation

1. Using technology such as AI, machine learning, robotic process automation (RPA), natural language processing (NLP), and big data analytics enhances the accuracy and efficiency of AML compliance efforts.
2. Digital identity verification tools, including biometrics and facial recognition, help fintechs onboard customers securely and comply with KYC requirements.
3. Advanced analytics and data visualization support risk modeling and proactive detection of suspicious activities.

8. Employee training

Regular AML training programs for employees are mandatory to ensure awareness of regulatory requirements, emerging money laundering techniques, and internal compliance procedures.

Global AML/KYC regulatory landscape for fintechs in 2025 

In 2025, fintechs face a regulatory environment demanding comprehensive, technology-enabled AML/KYC programs that are continuously updated and risk-based. Compliance is no longer a one-time hurdle but an ongoing operational imperative involving advanced identity verification, real-time analytics, and cross-border coordination to effectively combat sophisticated financial crimes worldwide.

1. FATF influence. The Financial Action Task Force (FATF) continues to set the global AML standards through its 40 Recommendations, which over 200 countries adopt to ensure consistent AML/CFT (Combating the Financing of Terrorism) approaches worldwide. In 2025, FATF remains focused on governance, inclusiveness, and transparency while updating its high-risk jurisdictions list, requiring fintechs to apply enhanced due diligence for transactions involving these areas.
2. European Union (EU) AML reforms. The EU has implemented a comprehensive AML package, including the establishment of the Anti-Money Laundering Authority (AMLA) in Frankfurt, operational from mid-2025, to centralize supervision of high-risk financial institutions and harmonize AML rules across member states. The EU also updated Transfer of Funds Regulations to cover crypto asset transfers, reflecting the growing importance of digital assets. Fintechs operating in the EU must comply with enhanced due diligence, real-time transaction monitoring, third-party risk management, and disclosure of beneficial ownership to centralized registries.
3. United States AML frameworks. The US continues to modernize AML regulations under FinCEN’s leadership, emphasizing risk-based AML/CFT programs, beneficial ownership reporting under the Corporate Transparency Act (CTA), and stricter controls on virtual asset service providers (VASPs). Fintechs must implement robust KYC, transaction monitoring, and suspicious activity reporting systems. Enforcement of sanctions compliance and geopolitical risk monitoring are also priorities.
4. Asia-Pacific regulatory frameworks. Key fintech hubs like Singapore and Hong Kong maintain strict AML regulations aligned with FATF standards. Singapore’s Monetary Authority of Singapore (MAS) enforces AML Notice 626, requiring strong KYC and transaction monitoring, while Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) imposes rigorous customer due diligence and record-keeping requirements.

AML/KYC solution for fintechs in 2025

To screen for fraudsters, fintech companies should use multiple methods to verify true document holders. This includes:

• Automated document checks. Using AI algorithms, companies can expose fake photos and documents submitted by an imposter.
• AML screening. It’s best to check customers against Politically Exposed Persons (PEPs) databases, sanctions lists, and internal blocklists of other platforms, as well as for adverse media to ensure secure onboarding.
• Facial biometrics. Liveness technology helps ensure that the true document holder is present during the KYC check. This prevents fraudsters from using masks or deepfakes to get verified.
• Behavior analysis. Businesses can gather data on user behavior to compare with suspicious patterns, detecting phishing and chargebacks.
• Case management. Case management provides a centralized, efficient environment for handling manual verification tasks across all case types (KYC, transaction monitoring, etc.), while enabling transparent team performance tracking and easy task assignment.
• Reporting. A reliable solution would provide an automated SAR/STR feature by detecting suspicious activities and generating ready-to-file reports.

Even if fraudsters don’t launder money through a particular business, they might be using previously laundered money to perform transactions—and it’s the business’s responsibility to prevent this from happening.

Compliance with AML requirements allows businesses to avoid regulatory sanctions and fraud. It also helps earn the trust of users and investors. To stay focused on their core tasks, businesses can delegate user onboarding to a provider, who sets up the KYC process for them in a quick and efficient manner. Companies that use Sumsub’s identity verification software reduce costs and boost revenue, according to The Total Economic Impact™ of Sumsub’s Verification Platform study by Forrester Consulting.

All in all, the right AML compliance routine helps not only avoid huge fines, but also improve the user onboarding experience and conversion rates.