AML Toolkits: Essential identity verification support for the digital economy

With Europe discussing Anti-Money Laundering (AML) regulations, Rayissa Armata, head of regulatory affairs at IDnow, discusses what it means for digital identity

Posted 26 October 2020 by Christine Horton

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 Commission’s opening headline was ‘The future of finance is digital’, a statement that reflects rising global expectations and demand for digital transactions.

The Commission and EU member states are currently 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. 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.

Financial industry consultancy, Duff & Phelps reported that institutions paid €378 million ($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 €650 million ($706 million) between January and June 2020.

For financial institutions, this reiterates the need for continuous improvement 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 integral to preventing and identifying money laundering, terrorist financing and identity fraud. The digitisation of KYC procedures has revolutionised the 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 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

The industry projected to grow to €12.5 billion ($15 billion) by the year 2024. Accuracy in technology is vital to innovation, healthy competition, and tackling fraud. To build further trust in the financial services industry, it is vital that identity solution providers are disciplined in the way they engage in identification processes.

IDnow can verify in near real time the identities of more than 4.3 billion people from 65 different countries. As an automated ID verification process, IDnow’s AutoIdent hybrid product 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.

A team of experts study and build effective analyses of cyber threats and counter measures to existing and potential attacks. This contributes to building stronger technical criteria in identity proofing standards, which ultimately can serve as a blueprint for more effective regulation.

McKinsey estimates that two to five percent of annual global GDP (€1.82 trillion or $2 trillion) is fraudulent activity. It is vital to meet and even exceed security requirements beyond a face-to-face identification. For example, 20 percent 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.

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 more vital to ensure integrity in the AML process.

Rayissa Armata is head of regulatory affairs at IDnow