AML Toolkits: Essential identity verification support for the digital economy

By Rayissa Armata, Head of Regulatory Affairs at IDnow

This September, the European Commission submitted its communication to the European Parliament on a digital finance strategy and the future of Anti-Money Laundering (AML) regulations. ‘The future of finance is digital’ was the Commission’s opening headline, a statement that truly reflects this year, with global expectations and demand for digital transactions rising exponentially.

The Commission and EU member states are in the midst of reviewing AML laws as well as other digital regulations, for example, the Union’s eIDAS Regulation for electronic identity and trust services. Such reviews and updates aim to better meet institutional risk while promoting innovations that serve and protect private and public digital services.

Protection for digital transactions

Indeed, digital technologies are key to transformative applications within the financial services sector, from digital payments, bank account transactions, to opening a new bank account remotely. As beneficiaries of these services, consumers must be protected from the risks and threats that exist around these digital transactions. For nearly a decade, AML legislation has been influenced by assurance standards such as The G7’s Financial Action Task Force (FATF), whose focus is to protect the financial system from unrelenting criminal and terrorist activities.

Lawmakers have set the bar high with laws to ensure compliance, and they show little sign of easing expectations within various market sectors that fall under AML legislation. For financial institutions, that means they must not only fulfil strict compliance requirements, but they must also continually improve their due diligence requirements in a transparent manner.

Impact of failing AML compliance

The stakes are high and potentially costly for financial institutions, but this has expanded to other entities with the increased maturity of AML laws. AML scrutiny has grown to other sectors including payment institutions, crypto currencies, electronic wallet providers, real estate, gaming operators, art dealers, insurance providers, as well as legal and accounting institutions.

However, what lawmakers and solution providers are finding is that organisations often do not devote sufficient resources to AML compliance.

For misses and lack of compliance, heavy fines are levied. Financial industry consultancy, Duff & Phelps reported that institutions paid EUR € 378 million (USD $444 million) in fines for AML violations in 2019. However, with the speed at which the world has changed in response to Covid-19, that number swelled to nearly EUR € 650 million (USD $706 million) between January and June 2020.

For financial institutions in particular, this reiterates the need for continuous improvement in order to conform to AML laws and avoid risk.

 A digitised KYC process

A key priority for any discussion around the future of digital finance is the Know Your Customer (KYC) element. This must be at the top of any company’s risk management and AML ‘to do’ list.

The KYC process ensures that an institution’s customers are genuine. It assesses and monitors risks and is an integral part of preventing and identifying money laundering, terrorist financing and other criminal activities such as identity fraud. The digitisation of KYC procedures has revolutionised an institution’s mandate to verify and validate a customer’s ID and biometric data within minutes, versus hours or days. Financial institutions operate in a world where risk mitigation provides institutions valuable metadata in near real time with the unique ability to tailor their relationships with customers. Though the task can be burdensome for banks, this ability to converse with customers can yield significant value

Technological accuracy is critical

Accuracy in technology is vital to innovation, healthy competition, and tackling fraud. To build further trust in the financial services industry, among clients, users and regulators, it is vital that identity solution providers are disciplined in the way they engage in identification processes. In an industry projected to grow to EUR  € 12.5 billion (USD $15 billion) by the year 2024[1], IDnow is confident of its place as one of the most reliable and secure solution providers in the KYC compliance sphere.

How IDnow is responding

As a leading European identity verification provider, IDnow is at the forefront of technology development and regulatory compliance. Its solutions meet the highest levels of security and fraud detection requirements within strictly regulated environments. With one of the world’s most advanced identity-as-a-service platforms, IDnow can verify in near real time the identities of more than 4.3 billion people from 65 different countries.

As one of the first providers to offer legally secure video identification of customers and electronic signatures without additional hardware, IDnow’s goal is to provide its customers with products that achieve the best in class solutions that are legally compliant and meet their security and conversion needs. The firm’s confidence and success in delivering such results permitted it to move forward with its semi-automated and automated identification platforms.

IDnow’s AutoIdent hybrid product continues to function at the highest assurance levels. As an automated ID verification process, the system incorporates Artificial Intelligence (AI) and Machine Learning (ML) – using biometric facial recognition and optical security feature verification, all while using dynamic video streaming. This process produces hundreds of images versus a single static image, while concluding with a human-based review to identify the user.

IDnow has witnessed relentless growth in fraudulent activity and increasing sophistication around it. Its team of experts constantly study and build effective analyses of cyber threats and counter measures to existing and potential attacks. It actively contributes to building stronger technical criteria in identity proofing standards, which ultimately can serve as a blueprint for more effective regulation.

Global Consultancy McKinsey estimates that two to five percent of annual global GDP (EUR €1.82 trillion or USD $2 trillion) is fraudulent activity.  In IDnow’s experience operating at the highest levels of security, it is the most capable of meeting and even exceeding security requirements beyond a face-to-face identification. For example, 20% of fraud is detected via IDnow’s identity fraud network. In required cases, IDnow includes a double check where an ident specialist is consulted. A double check that combines AI and ML technology with an agent, will greatly enhance the security and accuracy of our identification process[2].

Long-term technological evolution

The digital industry will continue to rapidly evolve to meet customer preferences – at the touch of a mobile app. Novel concepts to tackle the digital identity sector are now focusing on portable identities and even sovereign identities. As the picture takes shape, leading global technology companies and policy makers are exploring the move from national identity schemes to ‘person-centric’ identity schemes of Self Sovereign Identity (SSI).

This era marks a significant technological evolution and now that we have witnessed the effects of a global crisis, a greater reliance on remote identification methods will be all the more vital to ensure integrity in the AML process.