COVID-19 has had and continues to have a tremendous impact on every aspect of our lives. Face to face interaction has been limited to a minimum; people have had to stay at home and work remotely, and many businesses have been closed down due to either government orders or lack of customers. As a result, various industries in the market have been hit hard by the economic impacts of this crisis.
Mario Alfaro, May 19th, 2020
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AML regulations, more specifically KYC processes, have also been affected by this new reality. This article covers key aspects of how this pandemic will impact the future of the financial industry - what are the Covid-19 compliance challenges, possible outcomes and how Veriff could help to tackle the issues.
FATF encourages digitalization
This pandemic has, in many cases, brought out the best in us as we work hard to support each other in this scary new world. Additionally, the lack of physical interactions has illuminated several compliance weaknesses and vulnerabilities that we can overcome together.
Social distancing and quarantine mandates present several unique challenges to businesses obligated by law to perform KYC. Historically, many of these processes are physical - such as interactions with tellers at bank branches. This is where the digitization of the KYC process comes into play. Although there are laws that allow remote onboarding in industries such as financial and credit institutions, many have not yet implemented KYC processes that can operate on a fully digital basis.
On April 1, The Financial Action Task Force (FATF) president issued a statement about Covid-19 and measures to combat illicit financing. Governments are asked to work closely with financial institutions and other services to implement flexible mechanisms that have a risk-based approach to face the new challenges posed by this pandemic.
The FATF’s president, Xiangming Liu points out, “The FATF encourages the fullest use of responsible digital customer onboarding and delivery of digital financial services in light of social distancing measures.”
We live in a digital society in which institutions need to be at the forefront of new technologies. There is 13% annual growth in digital transactions and by 2022 60% of the world’s GDP is expected to be digitised. FATF encourages the use of technology, including Fintech, Regtech and Suptech with the aim of minimizing contact between people while providing the service. With this statement, the Intergovernmental organization Financial Action Task Force not only seeks to open financial institutions to the possibility of venturing into digital identification methods, but also to implement the FATF standards.
FATF has issued a guideline on Digital ID which highlights the security benefits of a digital identity. It improves security, privacy and the convenience of remotely identifying people for onboarding and conducting transactions that mitigate the risks of money laundering and terrorist financing. The FATF calls for prioritizing the key tools in the fight against money laundering, especially related to fraud, terrorist financing, and the associated risks presented by the current scenario in the face of the Covid-19 pandemic.
FATF is not the only institution that has issued guidelines and promoted the use of digital media for onboarding clients when using digital financial services. Both US FinCEN and Hong Kong’s KHMA have chosen a similar approach. Because of Covid-19, large industries are beginning to take initiatives in the United States to opt for the use of digital identities in order to support lockdowns. Telehealth restrictions for Medicare have been waived in the United States, and it is now possible to hold remote consultations with slightly more flexible criteria.
How can Veriff help?
The year 2020 brings along a series of changes for the financial sector. All industries, not just fintechs, are being forced to go digital. However, focusing on digital requires KYC processes to be effective with a level of security equal to or greater than the previous procedure. Industries are looking for reliable partners to help them meet AML requirements and delight customers.
This is where Veriff comes in. Simply verifying document validity and matching it to the person seemingly presenting the document is not sufficient - it needs an intelligent decision engine to verify a person’s identity. A one-size-fits-all solution does not work either.
Veriff is an identity verification provider that configures its checks and services for each client according to the compliance requirements, unique risk appetite and internal processes for customer onboarding. We help companies find the best ratio between fraud-prevention and the pass-rates. Our decision profile - a highly customizable and configurable flow - makes it possible to scale fraud protection up or down according to the requirements for compliance, speed, and conversions.
Also, what sets us apart is the variety and richness of data that we collect from each session. With the help of artificial intelligence, Veriff analyses hundreds of technological and behavioural variables in seconds to make a verification decision. We cross-compare sessions and leverage device and network information, customer behavioural information in our video first approach. All of this data enables us to make fast, yet accurate decisions.
All in all, we have the necessary technology to digitize the onboarding process for new clients and simplify the due diligence that subjects bound by the Anti-Money Laundering scheme must perform to use financial services without increasing risk. Therefore, it is expected that industries traditionally focused on the face-to-face approach look for digital alternatives. According to International Data Corporation, by 2024, over 50% of user interface interactions will use AI-enabled computer vision, speech, natural language processing (NLP), and AR/VR. Veriff is ready to help make it happen.
EDD in banking involves gathering information in order to verify the identity of customers and calculate the exact level of money laundering risk each customer poses. During the EDD process, the customer is asked for a much greater amount of information than they are during the CDD process, as this information can be used to mitigate the risks involved.
When carrying out due diligence, a financial institution must determine whether they should perform customer due diligence (CDD) or enhanced due diligence (EDD). This is because FATF guidance suggests that companies should adopt a risk-based approach to due diligence that reflects the specific level of risk that each individual customer presents.
Synthetic fraud is incredibly dangerous and is a major problem facing the financial sector. Unlike third-party fraud, where an entire identity is stolen and used to defraud enterprises and victims, synthetic fraud frequently has no specific consumer victim.