FinTech Glossary

Definition

AML refers to a set of laws, regulations, and processes designed to prevent criminals from disguising illegally obtained funds as legitimate money. It ensures that financial systems are not used for fraud, terrorism financing, or unlawful activities.

Regulatory Context

AML is a critical part of India’s financial and regulatory environment. Banks, fintechs, payment aggregators, PPIs, and businesses handling financial transactions must comply with AML norms issued by:

1. RBI (Reserve Bank of India)
2. FIU-IND (Financial Intelligence Unit – India)
3. Prevention of Money Laundering Act (PMLA)
4. SEBI, IRDAI, and sector regulators

Strong AML practices protect businesses from legal penalties, reputational damage, operational risk, and disruptions in payment flows.

What AML Includes

1. KYC (Know Your Customer): Verifying the identity and legitimacy of customers before onboarding.
2. CDD & Enhanced Due Diligence: Assessing customer risk and applying deeper checks for high-risk customers.
3. Transaction Monitoring: Detecting unusual spending patterns, large cash movements, or suspicious activities.
4. Screening: Checking customers against sanction lists, watchlists, negative media, and PEP (Politically Exposed Persons) databases.
5. Reporting: Filing mandatory reports to FIU-IND, such as STRs (Suspicious Transaction Reports) or CTRs (Cash Transaction Reports).
6. Record Keeping, Maintaining KYC, and transaction logs for regulatory audit and examinations.