4 Anti Money Laundering (AML) Requirements for Payment Processors

While payment processors are generally not directly subject to the same level of regulatory requirements as traditional financial institutions, they are still accountable when acting as conduits for transactions on behalf of their customers. Ensuring compliance with anti money laundering (AML) obligations is not just a legal necessity—it’s a foundational element of operational resilience and customer trust.

This guide explores four core AML requirements for payment processors, focusing on how these firms can build automated compliance frameworks to meet their own obligations when onboarding customers. 

What Are AML Requirements for Payment Processors? 

AML requirements for payment processors refer to a set of policies, procedures, and technologies that prevent financial systems from being used to facilitate money laundering or terrorist financing. These requirements typically include Know Your Customer (KYC) protocols, transaction monitoring, Customer Due Diligence (CDD), risk assessments, and regulatory reporting. 

Given the nature of cross-border transactions, payment processors must comply with jurisdiction-specific laws such as the Bank Secrecy Act (BSA) in the U.S., the 5th and 6th EU AML Directives, and FATF guidelines globally.

1. KYC 

KYC is the cornerstone of AML programs. Payment processors must verify the identity of their clients—whether individuals or businesses—at the onboarding stage. This includes gathering identifying information, validating documents, and screening against watchlists (e.g., Politically Exposed Persons and sanctions). A robust KYC process not only helps prevent financial crime but also lays the groundwork for ongoing risk assessments and compliance workflows.

2. Transaction Monitoring 

Transaction monitoring is a dynamic, ongoing process used to detect suspicious activity. Payment processors should deploy rule-based and AI-enhanced systems to monitor patterns, flag anomalies, and generate alerts. High-risk activities might include sudden spikes in transaction volume, transfers to high-risk jurisdictions, or repeated small-value transactions designed to evade detection. Effective monitoring ensures timely reporting to authorities and minimizes false positives.

3. CDD 

CDD extends beyond initial onboarding to include continuous scrutiny of customer behavior and risk profiles. Payment processors must apply different levels of due diligence depending on the risk associated with each customer. Enhanced Due Diligence (EDD) may be required for high-risk entities, such as those in high-risk geographies or industries susceptible to financial crime.

4. Risk Assessment

A risk-based approach (RBA) enables payment processors to allocate compliance resources efficiently and in proportion to the level of AML risk. This involves identifying and categorizing customer, product, and geographic risk factors, then applying controls accordingly. 

AML Penalties for Non Compliance

Failure to meet AML requirements can lead to significant consequences. Regulators may impose hefty fines, revoke licenses, or even pursue criminal charges. For instance, payment firms have faced millions in penalties for weak monitoring systems or failure to file Suspicious Activity Reports (SARs). 

According to a 2024 study, North America accounted for 95% of the global total in financial penalties, highlighting the heightened enforcement landscape in the region. Non-compliance also damages reputational capital and can disrupt partnerships with banks and financial institutions.

How to Automate AML Compliance 

To manage increasing regulatory complexity, many payment processors are turning to automation. Tools powered by artificial intelligence (AI) and machine learning can streamline KYC verification, monitor transactions in real time, and adapt to emerging risks. 

Fenergo’s Client Lifecycle Management (CLM) solution exemplifies this by integrating data, compliance logic, and intelligent rules to reduce false positives and improve operational efficiency. Automation not only enhances accuracy but also scales with business growth.

AML Requirements FAQs

Why are AML requirements needed for payment processors? 

Payment processors act as intermediaries in the financial ecosystem, handling vast volumes of transactions across borders. Without AML safeguards, these platforms could be exploited to launder illicit funds or finance terrorism. AML requirements ensure these institutions can detect, prevent, and report suspicious activity, thus protecting the integrity of the financial system.

What are the most common pitfalls in AML for payment processors?

Common pitfalls include applying generic rule sets not tailored to the business model, failing to update risk assessments regularly, and over-reliance on manual processes. Broad rules may generate excessive false positives, leading to alert fatigue and missed threats. Additionally, neglecting ongoing staff training and system evaluations can result in outdated or ineffective compliance frameworks.

What are AML compliance requirements?

Compliance requirements generally include implementing a formal AML policy, conducting KYC and CDD, ongoing transaction monitoring, filing SARs when needed, performing internal audits, and training staff. These must align with both international guidelines (e.g., FATF) and local laws (e.g., BSA, EU AMLDs).

What are the AML regulations for Fintechs?

Fintech firms, including payment processors, are subject to the same AML laws as traditional financial institutions, though the application may differ depending on their services and jurisdictions. Regulators are increasingly closing gaps by applying the principle of ‘same risk, same regulation.’ Fintechs must implement end-to-end compliance programs that match the risk profiles of their innovative product offerings.

What are the requirements for AML verification?

AML verification involves validating customer identities through official documents and data checks, conducting risk assessments, and screening against global watchlists. It also includes ongoing monitoring to detect changes in behavior or risk level. In many regions, electronic identity verification (eIDV) is permitted and often encouraged for speed and accuracy.