Embracing new technology developments to know-your-client (KYC) processes can help the financial services industry to tackle financial crime and terrorist financing without interrupting user experience, according to a white paper from Finextra and Mitek.
The paper, Digitising KYC: A win-win for financial institutions and regulators, suggested that moving towards digital solutions for KYC and anti-money laundering (AML) due diligence can also make for more secure identity verification.
It noted that regulators increasingly consider the financial industry as important in fighting terrorist financing, and therefore KYC and AML requirements are becoming more stringent.
The paper said: “A sound financial system, with proper scrutiny and analytical tools in place, may help to uncover anomalous transaction patterns, thus contributing to a better understanding of terrorist and criminal connections, networks and threats.”
Unintended consequences of AML and KYC due diligence processes should not prevent clients from accessing services, or prevent fintech firms from providing those services, the report said.
Appropriate technology should aim to streamline customer due diligence checks, improve anti-impersonation checks, allow for sharing of due diligence data between institutions, and monitor transactions for suspicious activity.
This would, in turn, free up resources currently spent on AML and KYC compliance.
The report said: “AML processes should be simpler, slicker and more cost-effective for both firms and consumers. Commercially available tools, government-backed identification initiatives, and technology developed by firms in-house will all play a part.”
Regulators are starting to encourage this kind of digitisation, the report suggested. It pointed in particular to Article 30 of the European Commission’s fourth Anti-Money Laundering Directive (4AMLD), which comes into effect in June.
According to the report, 4AMLD puts pressure on banks to conduct due diligence quickly, and also encourages digitisation of identity checking, ownership validation and background checks.
It said: “4AMLD accepts that electronic means of ID verification are as valid and trustworthy as in-person methods. Moreover, it points out that electronic ID documents also have advantages in terms of account opening, record keeping and the monitoring of high-value transactions.”
ID documentation of verification solutions that can allow enterprises to verify a user’s identity during a mobile transaction, and ‘data prefill’ tools can reduce friction in user experience, are already available, the report said.
Also, Smart Origination, a customer onboarding tool developed by Mitek, Fujitsu, ImageWare Systems, InAuth, Intelligent Environments and Trunomi, claims to allow financial institutions to gather, process and verify documents on the identity of new applicant in less than five minutes, reducing the cost of onboarding and reducing identity fraud and ‘application abandonment’.
Regulators are encouraging fintech solutions in KYC and AML processes, and financial institutions should embrace this, as well.
The report said: “The ‘digital first’ attitude of today’s tech-savvy consumers and financial services users mean that cumbersome onboarding processes may lose an institution potential new customers.”
It concluded that digital solutions that are emerging can meet the needs of both consumers and regulators in the environment, saying: “A seamless mobile user experience and strong and secure identity verification are not mutually exclusive.”
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