Financial services providers must complete identity verification checks during the foundational stages of the Know Your Customer (KYC) process. This is intended to identify the risk of and ultimately reduce illegal activity. Financial services firms that fail to complete KYC checks risk huge fines. Secure digital technology solutions can replace manual customer verification processes, reducing time, cost and risk.
Why are identity checks needed during KYC?
KYC checks are a legal requirement to examine and prevent the risk of white-collar crime, money-laundering and human rights violations. Penalties for error or neglect on the part of the financial services provider are high.
Before companies can examine the financial transactions and relationships of their customer, they need to be able to confirm they are who they say they are. KYC requires companies to have policies and procedures in place for identity verification. But firms have flexibility on how they complete these checks.
How can you prove an identity?
The UK has one of the most robust regimes around fraud prevention and anti-money laundering (AML). UK Government guidance defines identity as “a combination of ‘attributes’ (characteristics) that belong to a person.” In establishing more than one attribute to verify an identity, the process helps weed out “imposter”, or “synthetic” identities.
Companies need to have an initial “claimed identity” to verify, usually a name, birth date and address to check identity based on five steps, scored based on the strength of the evidence.
- Obtain evidence of the claimed identity such as a passport or evidence from a personal data store. Items which are harder to forge such as those with a chip are preferred, they are “stronger”, according to guidance.
- Check this evidence is genuine and valid by making sure, for example, a physical card is not expired or stolen and that visible security features are genuine. Personal data should be from a source with cryptographic security.
- Ensure the claimed identity has existed over time to reduce the risk of it being a synthetic identity or one from an expired person. These can include health, education, travel or payment records from organisations that checked the identity.
- Carry out an identity fraud check into whether the claimed identity has had details stolen or reported as such or is suspected of being synthetic.
- Verify the identity belongs to the person who’s claiming it. This is usually done by asking potential customers free text or multiple-choice questions.
Carrying out all these steps manually is time-consuming and expensive, especially if third-party validation is needed. Delays and errors can also discourage customers, causing them to abandon the transaction and impacting negatively on company growth.
The benefits of secure digital platforms for ID verification
A secure digital platform enables the completion of many AML and KYC processes in minutes and not days. Plus digital communications reduce the risk of lost or stolen hardcopy documents.
Within a digital environment, biometric checks can be used to compare a real-time image and ID document. This removes the need for manual verification checks and reduces customer abandonment. Additional live tests are possible where, for instance, the customer reads out a short phrase into a camera, proving the customer is present and increasing the certainty.
To check the claimed identity, a robust digital solution will use multiple data sources to ensure the customer’s online identity. The claimed identity will consist of details typed into a simple form.
These details can quickly be checked against authoritative records such as electoral registers, credit history, financial records and criminal records checks.
After this, secure platforms can ask customers knowledge-based authentication (KBA), or a series of questions only they know the answers to, perhaps a customer’s bank or utility provider. This data should be compiled from bureau or otherwise highly authenticated information.
Secure digital platforms can provide an out-of-the-box or tailored solution to financial and professional institutions, automating processes and preventing filing of incomplete KYC checks until all the compliance boxes have been checked.
BONAFiDEE’s secure platform for industry-standard digital identity verification
Secure technology platforms make compliant identity verification during onboarding much quicker, affordable and client-friendly.
BONAFiDEE’s digital engagement platform includes a full range of biometric and record checks to verify new customers’ identities in a safe, compliant and fully evidenced way. From the outset, the process is digitally tied to each customer's unique identity, providing evidence that KYC and AML processes have been completed by the same individual.
A full audit trail is available of the customer's journey through the consent, identity verification, data capture and document signing stages, all the way through to completion.
To find out more about our advanced electronic signature and customer verification solutions, download our guide, or contact our team.
