• Barley Laing, UK Managing Director at Melissa


• 15.02.2023 09:45 am
#bnaking #aml

It has been recently reported that global fines for banks and other financial institutions surged more than 50% in 2022 for failing to prevent money laundering and other financial crime. This has led to $5 billion in fines being handed out. Therefore, it’s perhaps not surprising to see in the news this month that Barclays is being probed by the FCA for suspected persistent failings in its compliance and AML systems. 

It’s very worrying that many in financial services still don’t have effective processes in place to meet anti-money laundering (AML) and know-your-customer (KYC) regulations. After all, increasing digitalisation, along with savvy criminals, will continue to put pressure on financial institutions, including those in other industry sectors, to ensure that they are dealing with prospects and customers who are who they say they are.

Start with data hygiene

ID verification tools are a vital way to meet AML and KYC regulations and prevent fraud. However, the cost of using such tools can be reduced and fraud will much less likely to occur if there are ongoing processes in place to ensure data hygiene.

For example, address validation, for proof of address, is about matching a name to an address, and is a crucial part of the data hygiene process.

With ID checks picking up rudimentary things, such as an incorrectly formatted address, it’s much better value and best practice to ensure that you have accurate user contact data in the first place, before undertaking identity verification. Particularly when an address check is about 1/50^th the cost of an ID check.

Use electronic ID verification (eIDV)

The best approach for those in financial services to ensure that they are dealing with the person they think they are online and help to prevent fraud, is to utilise automated electronic ID verification (eIDV), ideally in real-time, at the point of access online. It will play a vital role in helping to meet increasingly stringent global KYC and AML regulations.

To be effective the eIDV process must match names, addresses, dates of birth, emails, or phone numbers against reputable data streams, including government agency, credit agency, and utility records. All this must take place in real-time, to ensure a positive user experience. This entails using an eIDV service that offers real-time access to a dataset of billions of consumer records worldwide. It should ideally offer a full ID verification suite, including global sanctions data, politically exposed person (PEPs), relatives & close associates (RCA) data, and adverse media checks as part of its offering.

eIDV can also be used in ‘batch’ mode, whereby volumes can be processed annually or monthly, for example, to check for any change in an individual’s status, and therefore risk, over time. This ensures ongoing compliance.

Finally, the service must be able to enrich customer records, highlighting and correcting any existing inaccuracies which aids future targeting and communications.

Such an automated eIDV process is significantly preferable to the physical, time-consuming and more costly checks that are also subject to human error, which still occur behind the scenes at some organisations.

Document verification and biometrics

Document scan verification and biometrics should be combined, as part of a strategic eIDV process, to further prevent fraud. When it comes to the ‘remote onboarding’ of online users an important first step is document verification. It enables banks to verify ID documentation and identify the user with confidence, as they send their ID through to the awaiting authority, in real-time, and via their device of choice. Additionally, biometrics allows customers to quickly and simply access their accounts or services without the need to respond to time consuming security questions or recall passwords, which therefore helps to provide a positive experience.

With basic biometric services being hackable, it’s essential to incorporate a biometric algorithm that checks for eye movement. It’s the only way to ensure organisations are engaging with a real live person, not a static image or avatar, to further help prevent fraud.

Artificial intelligence (AI)

Although artificial intelligence (AI) is still evolving, it can increasingly work with and improve eIDV. For instance, semantic technology, or semtech, associates words with meanings and recognises the relationships between them. The automated pattern recognition and machine reasoning offered by semtech helps to identify possible fraudulent applications in real-time. The same technology also makes it possible to apply context and make inferences with data, ensuring properly validated identities as well as broader data quality and integrity.

Today, it’s simple to put processes in place to ensure data quality, eIDV, document verification and biometrics to deliver AML and KYC compliance. Doing so will help financial institutions to avoid fines and fraud, whilst ensuring a fast, secure and positive customer onboarding and ongoing customer experience.