Why is it so important in compliance and preventing fraud?

How do you know someone is who they say they are?

How do you confirm your customer’s identity when they aren’t sitting across the desk from you?
Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations were established to reduce the impact of money laundering, fraud and other forms of economic crime.

KYC and AML regulations are mandatory in many countries – and each country has its own particular laws like AML6 in the EU and the Bank Secrecy Act in the US. While financial institutions are most impacted by KYC and AML, industries spanning casinos to art galleries are affected.

What is KYC and why is it important?

How is it part of AML?

Know Your Customer (KYC) refers to the process of verifying the identity of a customer, either before or as they begin to transact with an organisation. KYC is also used within customer identity verification processes to assess and monitor customer risk. KYC is a legal requirement that forms part of the overall AML framework.

Businesses need to quickly and accurately verify the identity of a new customer, and often through a remote online channel, but without damaging a positive customer experience.

KYC obligations can be met with the assistance of an identity verification solution. Such solutions provide customer convenience while offering enhanced protection for both the customer and the organisation.

Remote digital biometric identity authentication solutions play a crucial role in mobile and web-enabled verification, where on-device technology can be used to prove authenticity through facial recognition, liveness and accurate data correlation.

Financial institutions impacted by KYC governance and compliance

For financial services institutions, in particular, KYC compliance is of utmost importance in helping customers open accounts and make financial transactions, regardless of device.

KYC requires institutions to gather personal information about a customer to ensure that their services are not misused and ensure that people applying for financial services are not on sanctions or Politically Exposed Persons (PEP) lists.

These KYC procedures take place at account opening and periodically thereafter, or when a customer changes their details. The personal information gathered differs globally based on regulations, the organization’s risk appetite, and the product.

KYC and AML regulations are becoming increasingly onerous for financial institutions. The onus remains on the institution to confirm and verify customer identities when transacting. KYC requires “reasonable due diligence” to know (and retain) essential data for every customer.

Regardless of whether the organisation is fully obliged to comply with KYC or not, companies of all sizes are adopting KYC to protect themselves and their customers.

Currently, KYC costs the average bank in Europe almost R1 billion a year.

With the steadily rising demand for online banking and shopping services, the principle of KYC has become even more important. By empowering customers to bank online, banks must be compliant with AML and KYC regulations to fight fraudulent transactions, financial crimes or even identity theft.

Service providers need to ensure that they enable their clients seamlessly, without compromising the quality of service.

Social Engineering: What to look out for and how to prepare?

How does iiDENTIFii assist with KYC?

iiDENTIFii provides superior online security solutions to organisations in the public and private sectors that improve data security and customer usability.

One of the key concepts we deliver is KYC. We enable service providers to control access to secured and/or data-sensitive platforms for authentic clients/users only, significantly reducing the risks of identity theft and fraud.

Identity verification solutions can:

  • Prevent bad actors from gaining access to services at the point of registration
  • Verify that a user is the right person using their stated identity during onboarding and returning authentication
  • Protect against financial crime by verifying that customers are who they say they are

iiDENTIFii’s remote digital biometric authentication builds on KYC to an even greater effect in the African market because of the following capabilities:

  • Assurance of 4D liveness™, including proof of liveness – the ability to confirm that an individual is a real person, present at that moment
  • Facial authentication – which matches faces to trusted images using machine learning and AI technology
  • Identity document verification – the ability to assess the authenticity of specific identity documentation
  • Facial biometric verification – triangulation of information with institutions like the Department of Home Affairs (DHA) and other trusted authoritative databases

iiDENTIFii uses remote digital biometric face verification as the most secure, convenient, and inclusive method of supporting KYC compliance remotely.

Ultimately, money laundering is on the rise, and financial institutions are at risk if they don’t maintain a strong AML posture. That’s why solutions such as iiDENTIFii, which can securely verify the identity of a remote customer, have become essential.

What about Customer Due Diligence?

The Customer Due Diligence (CDD) process enables financial institutions to collect and evaluate information about their customers or potential customers, in an effort to determine the risk of doing business.

KYC is a fundamental part of the AML framework, and CDD is a subset of KYC processes.

Having proper KYC controls in place enables appropriate due diligence on a customer or account according to its risk level. Although iiDENTIFii does not provide customer due diligence checks, we provide trusted identity verification during onboarding and ongoing authentication using facial biometrics.

Identity verification is part of CDD. Once verified, financial institutions can determine which accounts require further due diligence.

How does iiDENTIFii support KYC and AML?

With a brief facial scan, iiDENTIFii’s highly secure biometric face verification assures the liveness of a remote user and effortlessly supports compliance with KYC and AML regulations.

Remote digital identity verification depends on the physical person being able to authenticate their physical identity to an identity document (ID). The only way to do that is with proven facial biometrics and 4D liveness™.

Government-issued photo identification can be verified against the physical face of the person, checking that it is indeed the genuine holder of that ID. iiDENTIFii also performs liveness checks to ensure that the document and the applying ‘face’ are authentic and not spoofed. (Spoofing is the act of disguising a communication from an unknown source as being from a known, trusted source).

Our market-leading biometric verification is deployed across the world together with document verification to create a trusted and proven end-to-end KYC solution, and further AML compliance.

These are the key benefits of iiDENTIFii’s remote digital biometric authentication:

  • Improve the accuracy and efficiency of onboarding new customers remotely. Research in 2020 showed that while half of the top 20 US banks enabled a new customer to open an account in 30 minutes or less, almost half took 2 days or longer.
  • iiDENTIFii’s solution removes the requirement for in-person checks or manual verification, and increases accuracy while reducing costs.
  • accelerates the process, enabling customers to quickly gain access to their new accounts, while maintaining high levels of security.
  • Mitigate the risk of fraud and financial crime: iiDENTIFii ensures that new customers are who they say they are, with a high level of assurance.
  • Reduce the risk of compliance penalties and reputational damage from negative publicity: iiDENTIFii allows financial institutions to meet regulatory guidelines while reassuring customers and protecting the organisation’s reputation.

Together, these benefits reduce the costs and time taken for KYC and identity verification, removing much of the challenge associated with KYC and AML.

Why is liveness important in KYC & AML?

Liveness technology biometrically verifies that a face presented to a device is a live human being. However, not all liveness solutions are equal.

iiDENTIFii incorporates world award-winning and patented technology called 4D liveness™, which uses an effortless and passive face scan.

4D liveness™ provides the real-time assurance that an individual is a real person, ensuring they are:

  • the right person, using face matching by matching the identity to a trusted photo identity document.
  • a real, live person, and not a presentation attack (a physical or digital artifact presented to the device sensor, like a photo or mask).
  • authenticating right now, and not a digitally injected attack using a deepfake or other synthetic media (ensured by 4D liveness™ one-time biometric.

iiDENTIFii also uses passive biometric liveness for lower-risk scenarios. However, 4D liveness™ is recommended for KYC/AML initial user onboarding, to ensure trust is established at onboarding and will continue throughout the customer lifecycle.

4D liveness™ has iSOC active threat management in addition to liveness detection, which enables response to new and emerging threats.

KYC and AML: a summary

KYC is the requirement for financial institutions to gather personal information about their customers and ensure that services are not misused.

KYC is part of the larger AML framework, which refers to a set of regulations and techniques to minimise money laundering.

Financial institutions are spending billions of dollars annually to combat financial crime. These organisations face significant regulatory and reputational risks if they do not comply with KYC and AML.

iiDENTIFii supports KYC and AML compliance through two methods: customer verification during remote onboarding and ongoing authentication of returning customers. This allows organisations the assurance that their customers are who they say they are.

Using iiDENTIFii to assist with KYC and AML can reduce costs, enhance and streamline regulatory compliance, reduce onboarding times and improve customer experience.

KYC and AML regulations were established to counteract growing concerns regarding financial crimes. In 2020, an astonishing $10.6 billion in fines were imposed globally for non-compliance with AML and KYC regulations, rising 27% from the year before.

Organisations are under increasing scrutiny and iiDENTIFii can help.

How can we help?

If you’d like to know more about how iiDENTIFii can support your KYC and AML initiatives, book a demo with one of our product experts.

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Posted: April 26th, 2022