eKYC, balance between compliance and user journey

Financial entities are required to comply with requirements for verifying the identity of consumers of financial products. Remember your obligations and find out how to find the delicate balance of this equation between combating increasingly sophisticated crime and ordinary customers who demand ease of use and an amazing experience.

Know Your Customer (KYC) is a set of mandatory requirements to verify a consumer’s identity for financial products. In the scope of this evolving legal compliance, financial institutions have to ensure that customers are genuinely who they claim to be (and who are not terrorists) without, however, generating friction in opening accounts (face-to-face or online) that prevents the consumer from hiring a product or service.

At issue is the increased sophistication of financial crime, which leads to the need for increased care to prevent money laundering and terrorist financing.

On the other hand, the bank is aware that there is a significant percentage of customers and potential customers who give up in the middle of the onboarding process due to the complexity of it.

To avoid this, and also to deepen knowledge about the risk profile of customers and monitor suspicious movements between accounts, there are on the market KYC and onboarding solutions that will meet the expectations of simple and fast digital solutions to contact with their customers. After all, they are used to the ease of access and seamless experience with other applications such as e-mail, social networks or even online stores.

The time has come for banks to rethink their approach to risk requirements and compliance with KYC procedures – unequivocally proving customer identification – and preventing fraud while providing customers with simple and engaging account opening processes  (onboarding solutions).

This is the case with  UnikSystem’s solution for automation of KYC processes that allows you to reduce the onboarding time of customers to just a few minutes. It  manages to respond to the challenge of finding the delicate balance between combat and fraud and creating a win-win consumer experience. It can be used by banks, but also by any company that wants to attract customers and need to make sure that the Client is who he/she claims to be, with verification of identity and automatic completion of contractual documentation, with use cases in Insurance, Telco’s and other industries, in addition to the financial sector (fintech).

A KYC policy consists of  the following elements  (UE,2019; Banco de Portugal, 2018):

• Customer’s support to KYC policy;
• Identification of the Client (Identity, address, employment, IBAN);
• Verification on international lists of Publicly Exposed Persons (PEP);
• Risk Management and Mitigation (Credit Responsibility Center, earnings and client indebtedness).

If the KYC process is simplified and optimised, focused on the user experience, it can be a positive agent, for example by automatically filling out forms with user data, previously obtained in a secure and automatic manner in the documents provided by the Client  himself (eKYC).  

Financial institutions, such as banks or other intermediaries, which require mandatory and rigorous processes, are obliged by the Central Bank to have policies in accordance with KYC standards:

• Establish and ensure the identity of the Client;
• Help understand the nature of the Client’s activities;
• Assess and avoid the money laundering risks associated with the Client in order to monitor its activities;
• Prevent the favoring of terrorist activities;
• Assist the Client by recommending appropriate financial products, never exceeding their indebtedness, in order to be able to honor their contracts;
• Protect the institution in the event of losses and fraud caused by transactions of inappropriate or illegal funds.

New clients of financial institutions should make their data available not only before opening an account, but also when there are changes to the account or when additional information is required on a regular request.

After the formalities of data collection when opening the account, it is appropriate to review the knowledge of your client-in-care with a higher regularity for those at high risk.  

In the meantime, financial institutions should cross-reference their data with available data, including regulated or publicly available data.

For example, there is a mobile app that uses facial recognition and a pin to protect and share identity verification documents such as driver’s licenses or passports.

The app checks to see if the document matches the photo on the user’s ID card and then ensures that the person accessing the phone is the same as the documents. This system can be integrated into the user verification process and used to fill in the application data more quickly, avoiding the abandonment of the process.

Money laundering can be supported in repeated transactions of amounts slightly below 10,000 euros or carried out by different people on the same day in an account or internal transfers between accounts, a pattern that can be detected with the generation of alerts.

Persons and entities flagged (identified) internationally as suspected of illegal activities are included in the international checklists used in the onboarding process, generating automatic alarms and even preventing the continuity of the processes of contracting financial products or account openings.

They are fundamental automations in the process that allow banks to mitigate risks and thus comply with legal regulations.

To improve this whole process, the Anti-Money Laundering Authority (AMLA) is being setup, an initiative that is part of a package of European legislative proposals aimed at strengthening the rules and focusing on combating terrorist financing.

The new agency, which is due to start operating in 2024, will inherit powers from the European Banking Authority (EBA).

AMLA will oversee cross-border financial activities, and may impose fines, monitor cryptocurrency-related activities, coordinate national supervisory authorities and also support cooperation between national financial intelligence units.

According to the Euro news website, countries that do not properly adopt existing directives will have to apply the anti-money laundering rules uniformly. For now, national and international regulatory and supervisory authorities have presented guidelines in these matters for the financial industry, imposing control processes to mitigate risks.

In a sense, by unequivocally identifying their clients, financial institutions benefit. In addition to complying with the law and avoiding fines, can also contribute to the resolution of money laundering crimes, but, above all, you get to know your Client better and thus avoid losing them even during the onboarding phase.

There are solutions to improve the effectiveness and efficiency of processes for eKYC on financial institutions, including customer onboarding, providing an excellent user experience by the adoption of new digital channels, which currently already incorporate Artificial Intelligence technology and machine learning automation in the treatment of documentary information and generation of contracts.

With better and more up-to-date information about the Client, financial entities can even better mitigate their risk and present the most appropriate financial products to each Client, depending on their context and needs at any time.

Jorge Pereira @ Joyn Group