In plain words

Think of a jeweller who checks a buyer’s ID before a big sale. That is KYC. Now imagine the same buyer comes back every week, paying in cash from a different source each time. Checking the ID again tells the jeweller nothing new. What matters now is the money itself: where it comes from, where it goes, and whether it makes sense for this person. That second question is KYT.

KYT, short for Know Your Transaction, means understanding each payment a customer makes or receives. Who is on the other side? Is that person, company or wallet on a sanctions list or linked to crime? Where did the money come from? Does the amount, the country and the timing fit what the customer told you when they signed up? If the answers do not add up, the firm holds the payment, asks questions or reports it.

The term became popular through crypto, where blockchain analytics tools can trace the history of every coin. But the idea is much older than crypto, and it applies just as much to a bank transfer, a card payment or a wallet top-up. Every regulated firm has to know its transactions, not only its customers, under anti-money laundering (AML) rules. 1

How it works

How KYT works

The same four questions for every payment, whether it is pounds, euros or a stablecoin.

  1. 1

    A transaction starts

    A transfer, card payment, top-up, withdrawal or crypto transfer, with its amount, parties, country, channel and time.

  2. 2

    Who is on the other side

    The payee, payer or wallet is checked: sanctions lists, payee name checks, high-risk countries and, for crypto, the wallet’s risk score.

  3. 3

    Does it fit this customer

    The payment is compared with the customer’s profile, declared income or business, limits and past behaviour.

  4. 4

    Decide and record why

    Let it through, hold it, ask for source of funds, or escalate. A real suspicion goes to the MLRO, who may file a SAR.

Where KYT sits in AML

AML is the whole programme a regulated firm runs to keep criminal money out. The international standards set by the FATF ask for two kinds of checks: due diligence when a customer arrives, and ongoing due diligence for as long as the relationship lasts, including scrutiny of the transactions made through it. 1 UK law says the same thing in its own words: firms must monitor business relationships and scrutinise transactions, including the source of funds where necessary. 2

KYC and KYB cover the first kind. KYT covers the second. The table shows how the pieces fit.

PieceQuestion it answersWhen it runs
KYC / KYBWho is this customer, and who really owns this company?At onboarding, and again when details change
CDD / EDDHow risky is this customer, and how deep should the checks go?At onboarding, reviewed over time
Sanctions screeningIs anyone involved on a sanctions list?At onboarding and before each payment
KYTWho is on the other side of this payment, where did the money come from, and does it fit?On every transaction, before and after it moves
Transaction monitoringDo the payments over weeks form a suspicious pattern?Continuously, mostly after the fact
SARDo we have a suspicion we must report?When a case is escalated

KYT and transaction monitoring overlap, and many firms use the words loosely. A useful way to separate them: transaction monitoring looks for patterns across many payments, while KYT looks at each payment and its counterparty, often before the money leaves. A good programme does both, and feeds what it learns back into the customer’s risk rating.

The short version

KYC is a snapshot taken on day one. KYT is the film that runs for the rest of the relationship. A customer who passed KYC can still use the account for something it was never meant for, and only the transactions will show it.

Illustration

KYT across the customer relationship

Where KYT sits after onboarding Onboarding with KYC, KYB, due diligence and sanctions checks happens once. After that, every fiat payment and every crypto transfer goes through KYT checks before it moves and monitoring after it moves. Alerts from both lanes go to one review desk, which can hold, question, clear or escalate, file a suspicious activity report if needed, and update the customer's risk rating. DAY ONE Onboarding KYC / KYB and CDD Sanctions check FIAT Payment bank or card CRYPTO Transfer to or from a wallet BEFORE IT MOVES KYT checks payee, sanctions, fit BEFORE IT MOVES KYT checks wallet risk score AFTER IT MOVES Monitoring patterns over time on-chain exposure One review desk hold, ask, clear, escalate SAR if suspicious risk rating updated

Swipe sideways to see the whole diagram.

KYC happens once. KYT runs on every payment and every transfer, and what the review desk learns flows back into the customer’s risk rating.

KYT for payments vs KYT for crypto

The questions are the same. The data available to answer them is different.

Bank payments and cardsCrypto
Who is on the other sideName, account number or IBAN, bank and country, carried with the paymentA wallet address, with no name attached on the blockchain itself
Main checksSanctions screening, payee name checks, country risk, fraud scoring, comparison with the customer’s profileBlockchain analytics: links to sanctioned addresses, scams, darknet markets, mixers and hacked funds
Source of fundsThe sending bank and payer details, plus documents from the customer when neededThe coin’s history on the chain, sometimes many transfers back
Payer and payee dataRequired with wire transfers under the FATF standards and transfer of funds rulesRequired between crypto firms under the travel rule
Can a payment be reversed?Sometimes, through recalls or chargebacksAlmost never, so checks before the transfer matter more

In practice the two meet in more and more products. A wallet that lets customers buy a stablecoin with a bank transfer needs payment KYT on the way in and blockchain KYT on the way out. The same customer, the same risk rating, two kinds of data. Read more in what founders need to get right before a UK stablecoin launch.

What a working KYT setup needs

01

Counterparty data

Every payment stored with who sent it, who received it, their bank or wallet, and the country, in a form the checks can read.

02

Checks before money moves

Sanctions screening, payee checks such as UK Confirmation of Payee, and wallet screening for crypto, fast enough not to break the payment.

03

Customer context

The risk rating, expected activity and declared purpose from onboarding, so each payment can be judged against them.

04

Ways to act

Holds, limits, requests for source of funds and account restrictions the team can apply in one click.

05

A review desk

One place where an analyst sees the payment, the counterparty, the customer’s history and the risk score together.

06

An audit trail

Every check, score, decision and reason recorded, so the firm can show its licence holder or regulator why it acted.

Most firms buy the screening lists and blockchain analytics from specialist providers. What they cannot buy is the product side: clean transaction data, the customer context and the tools to act on a result. For the evidence regulators and partners expect, read the evidence-first MVP blueprint.

KYT in the UK, EU and Gulf

All three follow the FATF standards, so the duty to understand transactions is the same everywhere. 1 What differs is the extra rules around it.

MarketWhat shapes KYT
United KingdomOngoing monitoring and transaction scrutiny under the Money Laundering Regulations 2017, which also cover crypto firms registered with the FCA. 2 Confirmation of Payee checks the name on a transfer, and APP fraud reimbursement rules make payment firms share the cost of scams
European UnionNational AML laws today and the single EU AML Regulation from July 2027. The transfer of funds rules require payer and payee details with transfers, and since December 2024 they apply to crypto transfers as well. 3 Verification of Payee checks names on euro transfers
UAEThe federal AML law, supervised by the CBUAE for banks, wallets and payment firms. Crypto firms licensed by VARA in Dubai, or in the financial free zones, are expected to screen virtual asset transfers and apply the travel rule
Saudi ArabiaThe Saudi AML law and SAMA’s rules for banks and payment firms. Instant transfers and remittance corridors put weight on checks before money moves

Example: one customer, two kinds of KYT

Omar runs compliance operations at a remittance app that also lets customers buy and send stablecoins.

  1. Onboarding. A customer passes KYC and says she sends about £300 a month to family abroad. The app rates her as low risk.
  2. Payment KYT. Two months later she receives £9,000 from five people she has never dealt with, within two days. The payments do not fit her profile, so the app holds her outgoing transfer and asks where the money came from.
  3. Crypto KYT. The same week she tries to send stablecoins to an external wallet. Blockchain analytics show the wallet received funds from an address linked to a known scam. The transfer is stopped before it leaves, because once sent it could not be recalled.
  4. Decision. Omar reviews both alerts together in one case. Her explanation does not hold up, so he escalates to the MLRO, who files a SAR and restricts the account. Every step is recorded.

Common misconceptions

“KYT is a crypto thing.”

The name came from crypto tools, but every payment firm has the same duty. Bank transfers and card payments need KYT just as much, with different data.

“If we did KYC, we are covered.”

KYC only proves who opened the account. AML rules require you to keep checking what happens in it for as long as the customer stays.

“A KYT provider handles it for us.”

A provider supplies lists and risk scores. Your firm still decides what to do with each result, and must be able to explain that decision.

FAQ

Is KYT only for crypto?

No. The term became popular with blockchain analytics tools, but the idea applies to every payment: bank transfers, card payments, wallet top-ups and withdrawals. Any regulated firm must understand the transactions its customers make, not only who those customers are.

What is the difference between KYC and KYT?

KYC checks who the customer is when they open an account. KYT checks what they do with it afterwards: each payment, its counterparty, the source of the funds and whether it fits the customer's profile. A firm needs both to meet anti-money laundering rules.

Is KYT a legal requirement?

The phrase KYT does not appear in most laws. The duty behind it does: AML rules in the UK, the EU and the Gulf require firms to scrutinise transactions throughout the customer relationship, including the source of funds where necessary. KYT is the industry name for doing that.

Is KYT the same as transaction monitoring?

They overlap. Transaction monitoring usually means rules that look for suspicious patterns over time. KYT is the wider idea of understanding each transaction, including checks before money moves such as sanctions screening, payee checks and, for crypto, wallet risk scores.

How does KYT work for crypto?

Blockchain analytics tools trace where a wallet's funds came from and where they went. Each address or transfer gets a risk score based on links to sanctioned addresses, scams, darknet markets, mixers and other high-risk sources. The firm then accepts, holds or rejects the transfer.

Who is responsible for KYT in a fintech?

The regulated firm, and in particular its MLRO, is accountable for monitoring. If you launch under a partner's licence, the partner sets the rules, but you usually build and run much of the checking in your own product and must give the partner the data and evidence it needs.

Related terms

AMLKYCKYBTransaction monitoringSanctions screeningCDD / EDDTravel ruleSARConfirmation of PayeeOn-ramp / off-ramp

Sources

  1. 1 F

    FATF Financial Action Task Force

    https://www.fatf-gafi.org/
  2. 2 LG

    legislation.gov.uk The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

    https://www.legislation.gov.uk/uksi/2017/692/contents
  3. 3 EL

    EUR-Lex Regulation (EU) 2023/1113 on information accompanying transfers of funds and certain crypto-assets

    https://eur-lex.europa.eu/eli/reg/2023/1113/oj