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Leveraging Digital Identity Verification to Stay On Top of New AML Regulations

Coping with the rapid pace at which new Anti-Money Laundering (AML) regulations are enacted poses quite a challenge to enterprises worldwide. If you take the case of financial institutions, this entails a dual test, as banks and other financial services providers not only need to comply with an increasing number of AML and Know Your Customer (KYC) requirements, but also have to do it in a way that doesn’t scare off their prospect clients, preventing them from opening new accounts. 

As the research team at BBVA points out in its Financial Regulation Outlook February 2016.

“Customers are nowadays accustomed to signing up easily to digital services (such as social networks or on- demand streaming) from their computers or mobile devices in just a few seconds. After providing some personal information, accounts become fully operational and customers can immediately start enjoying the services. However, in the case of banking services, digital onboarding – the process of turning a non-customer into a new one through digital channels – is far from being so straightforward.”

BBVA argues – and it’s not a sole voice when doing so – that this is because regulations on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) require financial institutions to verify the identity of their customers and know their occupation and/or economic activity. Verifying the identity of new customers by remote means is the main challenge to digital onboarding from both the regulatory and the technical perspective. 

With the 4AMLD, the European Union encourages the use of digital identity verification

However, EU governing bodies have recently adopted a warmer approach towards digital identity verification, understanding that this is the most cost-effective way of responding to the demands of their ever mobile-centric and technically savvy customers for an easy to use and secure ID authentication experience. Additionally, utilizing electronic means of identity verification will help banks and other financial institutions to support the ongoing AML without making an additional effort as these digital solutions are already in compliance with the most comprehensive regulations.

Contrary to what it might look like at first sight, coming up with a solution for this convenience-risk conundrum arguably got easier after the Fourth Anti-Money Laundering Directive (4AMLD) was amended by the European Commission in June, as the updated regulation recognizes that “Accurate identification and verification of data of natural and legal persons is essential for fighting money laundering or terrorist financing. Latest technical developments in the digitalization of transactions and payments enable a secure remote or electronic identification.”

Despite adding pressure on financial institutions to be in compliance with the new AML rules in a shorter period of time - the start date has been brought forward to 1 January 2017 from 26 June 2017 -, truth is that the 4.1.AMLD tends a helping hand as it encourages banks, prepaid card operators, virtual/digital currency processors, exchanges and wallets to embrace the digitalization of traditionally cumbersome processes such as identity verification, ownership validation, and extensive background checking.

In addition to that, the adoption of the newest Anti-Money Laundering Directive helps European countries harmonize their enhanced due diligence rules for high-risk nations, establish controls for virtual currency platforms and prepaid products and streamline data-sharing among EU Financial Intelligence Units.

Likewise, the new regulation brings EU into compatibility with the latest guidelines from international regulators such as the Financial Action Task Force (FATF) helping to ensure global consistency across AML policies and therefore reducing the redundancy of various compliance requirements. 


Comments: (1)

A Finextra member
A Finextra member 29 October, 2016, 03:12Be the first to give this comment the thumbs up 0 likes

Nice update on RegTech in the European region.

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