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At SmartSearch, we have made no secret of our view that electronic verification (EV) of customer ID should be made compulsory.
There is, in my view, an overwhelming case to be made as to why electronic verification and screening are superior to manual document-based processes. The Covid-19 outbreak reinforces that case and serves further to highlight the advantages of EV over these outdated processes.
Fake documentation is responsible for a large and growing proportion of financial crime. We live in an era when technology has made it easy for criminals to produce fakes that are so convincing even real experts can struggle to spot them, and fraudsters have proved themselves to be highly skilled in creating forged or falsified documents. By contrast, it is to all intents and purposes impossible to create a false data trail that can escape detection.
With restrictions on movement in place in large parts of the world, it is clear that clients cannot be expected to present original documents – photo ID, proof of address and so on – in person. They are not able to travel to a firm’s offices, and most or all of the relevant staff are working remotely. Clients can hardly be expected to send original copies of sensitive personal documents to employees’ home addresses, even supposing staff are happy to share these; and home offices are not generally well-equipped to process these documents appropriately.
Various workarounds have been put forward for firms, including the use of scanned PDF documents and ‘selfies’ for the purposes of facial recognition. This is fine as an additional layer of reassurance but on its own it gives very little information about the person in question. Facial recognition needs to be backed up by solid data about a customer’s address and credit history for example, to ensure that they are who they say they are.
Electronic verification can do all this automatically and a full individual AML check takes just seconds to perform. There is no need for any documents to be posted or scanned, and staff can perform the checks securely from any location. As well as confirming ID, a digital AML platform can also screen prospective clients against global sanctions and politically-exposed persons(PEP) lists, and provide ongoing monitoring in case a client’s status changes These are powerful advantages at the best of times; in lockdown they are practically indispensable.
There is also a clear direction of travel from regulators. The EU’s Fifth Money Laundering Directive (5MLD) gave a strong steer to Member States that electronic verification should be used wherever available. In the UK, the consultation on implementing that Directive made clear that the Government strongly favours EV, and went as far as to ask for views on how it could best encourage take-up – not just on grounds of improved security but also because they felt it would save firms money.
More recently, in response to the coronavirus outbreak, the Financial Action Task Force – the multinational body that sets the global strategy for anti-money-laundering (AML) and countering the finance of terrorism (CFT) – has issued guidance urging “the fullest use of responsible digital customer onboarding” and encouraging “the use of technology, including Fintech, Regtech and Suptech to the fullest extent possible.”
It is time that governments, in the UK and other advanced economies, bit the bullet and took the next logical step down this path. A further European Directive (6MLD) is due to take effect in Member States in December and we are calling on the UK government and others to use that opportunity to make electronic verification compulsory.