AML/KYC in the digital age
In the fight against fraud, money laundering and the financing of terrorism (AML- CFT), financial institutions are subject to obligations including the « Know Your Customer » (KYC). The KYC system is a process to verify the identity of a company’s customers to prevent identity theft, corruption, money laundering and terrorist financing. And in the digital age, traditional methods of identifying customers leave room for new solutions. What are these solutions and what is their impact on businesses? On the one hand, we have « e-KYC » solutions for online identification of customers, identification via electronic signature and blockchain. These new technologies allow companies, especially financial institutions, to avoid not only sanctions, but also damage to their reputation.
« KYC is at the heart of the concerns of financial institutions that are both in search of efficiency, improved customer experience and compliance »
- e-KYC system or online identification
New technologies allow financial institutions to set up a new system for online identification of customers in their customer knowledge process. Online identification is by means of photos, or scan of official documents that can be controlled allowing the user to prove his identity. The prospect or customer can then upload a photo. It can be a simple selfie and documents like his ID card, his passport, tax notice, etc. These data are recorded on mobile and then transferred to a server for an “automated consistency check”. For some people, “the automatic controls are still less effective and do not allow to overcome the intervention of a back office …”. Clearly, the use of technology in the KYC process still requires the intervention of the human. Absolute automation can not be envisaged.
“In some countries like Germany, videoconferencing is accepted as equivalent to a face-to-face interview, which allowed N26 to develop a 100% distance-based connection offer”
Online identification can also be achieved using facial recognition technologies. Facial recognition should serve as strong evidence of the client’s identity. Banks will be able to compare the results of facial recognition with the photo uploaded by the customer. However, the use of facial recognition must be carried out in accordance with the GDPR, even if the KYC came from a legal obligation that may constitute a legal basis for the processing of personal data of customers.
- Blockchain technology and electronic signature for KYC
Financial institutions, with the aim of optimizing their KYC processes, can opt for a collaboration : the sharing of customers data between banks. The blockchain promotes a simple and secure sharing of customers data. « Blockchain technologies make it possible to share KYC data and documents, test results and update history in an open, secure and non-falsifying trust network ». In the KYC process, banks can also use electronic signatures. “When remotely identifying individual customers, verification of their identity can be done by means of a qualified certificate”