The development of technology and communications made moving money fast, easy and cheap around the world. On the other hand this made the task of combating money laundering and financing of terrorism more demanding than ever. Financial institutions face great challenges to satisfy the demands of the regulatory authorities and prudent regulations.

It is not easy to determine the total amount of money going through the “laundering” process, but it is estimated that globally it accounts for about 2-5% of total GDP or $ 800 billion – $ 2 trillion in one year. While the margin between these numbers is huge, even the lower estimates underscore the seriousness of the problem that governments around the world have pledged to address.

The usage of mobile banking has brought enormous novelty to providing financial services, and it has been increasing with each age group over the years. On the other hand that made KYC difficult, slow and raised the costs for personnel in the companies that provide financial services. Fast onboarding process is a must. Also, there is more space for mistakes, naturally made by human error or negligence.

The more and more demanding regulations required a bunch of documents that need to be provided by the customers in the process of providing financial services.

ensure greater accuracy

Therefore digital authentication and automation of the KYC processes is a must for the financial institutions. The new, so-called e-KYC is expected to open a whole new chapter of business and to provide more accurate KYC for the financial institutions. The primary purpose of automated KYC is to reduce the use of physical documentation, storage space for such records, and to reduce costs and time required. E-KYC allows submission to take place in real-time. This makes the process streamlined and less prone to corruption in industries such as banking, finance, etc. With online verification, customers can open new accounts, apply for loans, take out new life insurance policies, invest in new mutual fund companies, and trade with cryptocurrencies through electronic devices, especially smartphones, in an era when customers prefer to communicate through online channels.

BASIS ID provides software that makes automation of the Know Your Customer processes easy. It reduces the time required for onboarding of a new customer and eliminates the possibility for human error. Therefore, your company is on the safe side, when visited by the regulator. Moreover, the onboarding speed of the customer provides your company with business advantage among the competition. Faster onboarding means more customers.

Financial services are undergoing a rapid process of digital transformation and digitalization, which has fundamentally changed the business models used by financial institutions. For financial institutions, digital banking can help reduce transaction costs. But while reducing the transaction costs, financial institutions face an issue – increased costs for so-called back-office activities. That means increasing the personnel needed, increasing space required for record keeping and at the end, also increasing the need for cloud storage. BASIS ID solves these problems. It offers a system that can satisfy the demands of the regulations for KYC and AML, as well as lowers the need for personnel. Since it is a KYC and AML Software that integrates fast within the systems that financial institutions use, it allows the financial institutions to save the needed time for implementation. Moreover, BASIS ID offers support 24 hours a day, 7 days a week.

Now, people do not need to bring all their personal documents to the bank, or other financial institution, to confirm their identity when they want to open an account or to perform other financial activity. More and more transactions are performed on electronic platforms, using mobile phones, tablets, and computers. This makes easy for companies to expand their customer base or provide financial services because people do not want to waste time on complex procedures to open a bank account or get other banking or financial services in the physical premises of the financial institutions.

E-KYC is a process in which entities seek a digital (and usually national) ID card system to verify the identities of their clients and, in some cases, retrieve basic information about them. For e-KYC systems to be effective, however, they must be backed by robust digital ID card infrastructure with extensive coverage. Out of 175 countries with an established national ID card system, 161 have been digitized and 83 are collecting biometric data. The World Bank defines digital IDs as “a collection of electronically captured and preserved identity attributes that uniquely describe a person in a given context and are used for electronic transactions. It provides the conviction that the person is who they are supposed to be. “

In that manner, regulators also face a challenge. In order the economies to take advantage of the opportunities offered by the digital provision of financial services, regulators seek a way to improve their regulations and increase the digital services offered in their jurisdictions. But we can see that fintech did not change the core of the financial regulators, it only imposed challenges to go digital.

KYC and AML Solution

Most of the jurisdictions today apply the existing regulations to digital banking. But in the case with Hong Kong and Singapore, specific regulations have been put in place for licensing digital banks. Both jurisdictions establish rules and regulations that apply to digital banks only. And that is a way of regulating, for example, digital banking, which will spread through the most of the jurisdictions in the near future.

In the European area, the European Central Bank issued specific regulations on how credit institution authorization requirements would apply to fintech. While fintech companies are held to the same authorization standards as other financial institutions, the guide highlights supervisory considerations with respect to the specific nature of banks with fintech business models. Considering that risk imposed from money laundering can jeopardize the license granted from the regulators, having a software that is prudent and allows the companies to mitigate the risk of being used in the scheme of money laundering is a must.

Financial service providers seeking to digitize face a dilemma. They are required to verify customer identities in order to meet regulatory requirements but also strive to bring new customer-friendly experience in order to retain existing customers and gain new ones. Of course, any operational (or other) damage caused by money laundering also exacerbates reputation damage and vice versa; a sudden loss of reputation may endanger the institution’s substantial financial position.

There are several ways and technologies that can be implemented to perform eKYC, AML screening and online identity verification. For financial institutions relying on document ID and biometric verification, the process of online identity verification generally consists of several key steps:

  • Optical Character Recognition (OCR) for extracting data from an ID card,
  • Verification of the identity card to ensure that the identity card is valid,
  • Selfie photo and comparison with ID card to increase identity security.

In addition, the companies that provide financial services need to also keep in mind the sanctions lists, to provide enhanced due diligence for certain types of customers, to obtain information and documents to proof the customer’s wealth or source of funds, to provide screening for adverse media regarding their customers etc.

We can all agree that to doing this adequately and satisfying the demands of the regulator requires a lot of work, expertise, precision. In this manner, BASIS ID offers KYC and AML software that covers all the above mentioned requirements. The software offers identity verification of EU, APAC and US identification documents, offers biometric identification (that includes 500 video frames biometric and liveness analysis, 3D face modelling for motion, rotation and blinking analysis, facial expressions analysis and comparison with the identity document). Moreover, BASIS ID offers screening of customers against sanctions lists, triggers for enhanced due diligence, risk scoring etc.  

It is worth to mention that the requirements are meant not only for the companies that provide financial services, but AML & KYC requirements are also obligatory for the gambling companies, i.e. for online casinos. As it can be seen from the National Risk Assessment made by the Gambling Commission of United Kingdom, the gambling industry is not immune to money laundering and terrorist financing. The gaming industry needs to be aware that it can be easily used by criminals that are looking for alternative ways to launder money. Additionally, gambling is considered as high-risk industry among other financial services companies, especially among banks. Therefore, in order to provide necessary proof that the gambling entity is regulated, banks usually ask for licenses and establishing an adequate KYC & AML/ CTF regime in whole. The KYC process for a company that offers online gambling can be both expensive and unwilling. BASIS ID`s KYC software eliminates the need of demanding personnel and expensive measures that need to be implemented. Having into consideration that the gambling company has implemented KYC software, but also software that verifies identification documents and performs sanctions screening and provides triggers and red flags for performing enhanced due diligence, the gaming company can easily present to the regulator that has implemented adequate AML/ CFT & KYC system. That means easy access to gaming license but more importantly easy access to financial institutions that are willing to provide financial services for the gaming company. In the end, that means, on-time payments to the customers/ players, and ability for growth of the company itself.

That is the way KYC software and costs regarding remaining in compliance with the regulations that govern AML can be turned into benefit for the companies and increased profits. We at BASIS ID believe that adequate implementation of the KYC software can provide advantage among the industry, and provide customers experience that will definitely bring them back to your business.

In addition to the huge compliance costs of KYC/ AML, financial institutions are increasingly under pressure from customers to facilitate and accelerate transactions. Unfortunately, in many cases, current compliance programs are manual, fragmented, and slow, all of which hinder client operations and potentially destroy the institution’s relationship with the client.

As digital systems have grown in popularity over the last few decades, the problem of fraud and identity theft has become a major issue because every company, from banks to retail outlets, has a different way of verifying customer’s identity.

Each financial institution should check the identity of the customer. Usually, this involves a long, drawn-out practice where certain documents are displayed, and some sort of verification takes place. The pressure to increase KYC compliance comes from regulators who want to stop the more sophisticated financial crimes we see every year. BASIS ID offers unique solution that manages all the necessary actions that need to be performed by your company. Using the technology offered by BASIS ID will enable financial institutions to rely on the same shared and secure source of digitized customer information, rather than collecting and verifying information multiple times and generate unnecessary demands to its customers.

Although the problems the companies face when implementing the ever-evolving regulatory requirements are what’s often highlighted, it’s benefits shall not be forgotten. Restricting money launderers from using the financial institutions and jurisdiction itself mitigates greater negative effects to the society.

The negative economic effects of money laundering on economic growth are difficult to quantify, yet it is clear that such activity harms financial institutions crucial to economic growth, reduces the productivity of the economy by redirecting resources and encouraging crime and corruption, and may disrupt the external sector of the economy – international trade and the flow of capital – to the detriment of long-term economic development. Therefore, not only profit matters. Your company can be profitable on short term, but if the jurisdiction that you operate in is considered as high-risk, jurisdiction that enables space for the criminals to launder money – the ability to grow cross-border and to establish a business that is stable on long term is at least limited if not impossible.

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