By René Hendrikse, MD, EMEA at Mitek
Ireland has become one of the most confident and successful countries in Europe, enjoying a booming jobs market and an economy that was the EU’s fastest-growing in 2018, for the fifth consecutive year.
It’s not all good news, however. Ireland sits within the EU’s top ten countries for money laundering activity, and reports have advised that Brexit has increased the risk of Ireland becoming a “perfect storm for money laundering”. This is a serious challenge for a responsible global citizen like Ireland – and, of course, its financial institutions.
Convergence of regulations and the banking customer experience
With every challenge comes opportunity. While financial regulation is often seen as a burden, in this instance it represents the opportunity for Ireland’s banks and financial services organisations to simultaneously revolutionise the customer experience in many ways – including account onboarding through mobile devices – as they strengthen their compliance. A quick look at what the law shows us how this can be achieved.
Ireland has long taken the issue of money laundering very seriously. The country has been a member of the Financial Action Task Force (FATF) since 1991, and in 2010 enshrined its commitment to tackling money laundering in the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010. This piece of legislation brought Ireland in line with the European Union’s Fourth Anti-Money Laundering Directive (MLD4) – the latest version of a constantly-evolving regulation designed to combat terrorist funding, human trafficking and other criminal activity. This latter regulation is one with real teeth: those who violate MLD4’s provisions face a maximum fine of at least twice the amount of the benefit derived from the breach or at least €1 million.
The next iteration to MLD due to come into effect in January 2020, providing further, much-needed improvements in specifying the acceptability of electronic documentation. The proposed MLD5 requires that member states “establish automated centralised mechanisms, such as central registries or central electronic data retrieval systems, of bank and payment accounts”.
For many EU countries, the digitisation of records may prove an enormous headache, since traditionally customer identification has been done via an in-person review of the identity document, with banks and financial institutions making photocopies. Ireland, however, is already ahead of the game. As Compliance and Risk Officers at Irish banks know, Section 33 of the 2010 Act (relating to customer due diligence) makes provision for “electronic verification of the customer’s identity on the basis of documents (whether or not in electronic form) [emphasis on original].”
This puts Ireland’s financial service providers in pole position to handle new customer onboarding, and to create an experience that is fast, mobile, and hassle-free for their customers.
Digital Identity Verification
Because Irish law promotes electronic verification of identity documents, there is a substantial opportunity for financial services organisations to act fast, improve their operations, due diligence, compliance and customer experience and educate customers of the benefits.
Using digital identity verification for onboarding, due diligence is achieved by asking individuals to take a photo of their identity document and then a selfie with their mobile device, linking the document to the real person. Advanced artificial intelligence is then used to validate the authenticity and originality of the identity document. A second layer of identity verification is used on the selfie using sophisticated biometric face comparison algorithms that automatically compare the portrait extracted from the identity document with the selfie, proving that the person submitting the ID is its rightful owner. This digital process can be done in seconds and the individual does not have to visit a physical location to prove their identity.
Traditionally, this step in the account opening process has been conducted in person, which is typically very time-consuming for both the bank and its new customers. With the right technology, and solutions digital document verification enables financial institutions to meet all regulatory requirements, including GDPR, MLD4/5, and Ireland’s Criminal Justice Act – while also providing the convenience for the customer.
Combining identity document authentication with biometric face comparison enables banks, fintechs and other regulated providers to guide their prospective customers through the process via their mobile device. They can do this in a number of ways: for example, by using a digital assistant or chatbot, for fast and intuitive onboarding that they can complete with a few taps of their screen. Making ID verification “digital by design”, banks and other institutions can also prepare themselves for MLD5 and other regulations by making it easier to provide full records that prove due diligence was undertaken.
Further benefits of electronic verification
Important as it is to stay compliant with anti-money laundering regulations, there are a host of other benefits from implementing proven digital verification techniques. From the customer’s point of view, one of these is the ease, convenience and simplicity of being able to submit and verify their documentation.
Like many other industries, financial services are rebuilding long-established business models around the core principle of providing brilliant customer experiences. Challenger banks and other fintechs have so-far led this race, but now digital verification is available to any establishment, regardless of their existing technology estate. It means that they can immediately begin to make account opening fully digital, with no tedious requirement to visit a branch. What’s more, research by Consult Hyperion suggests that mobile technology can significantly decrease the risk of sanctions, provide significant improvements in user experience and reductions in Know Your Customer (KYC) friction, while delivering savings for the average bank of £5m in operational costs, rising to £10m in three years’ time.
Regulation is seen as a burdensome challenge in every industry, but the banking and financial services sector understands the importance of rules to combat the rise in crime such as money laundering. Seldom does a solution to compliance come about that can also provide for an intuitive and secure customer experience. Digital identity verification is one of these rare examples.