Know Your Customer: 2021 Regulations Roundup

We’re nearly closing out 2021. It’s time to revisit a few of the anti-money laundering and counter-terrorist financing regulations that have been passed this year. AML and KYC are critically important during onboarding and to mitigate the risk that can damage your bank or financial services company. There have been many large fines enforced, even for minor gaps in identity verification and anti-money laundering efforts. Yet, this year major issues still surfaced, including cryptocurrency theft and identity document tampering and fraud.


What is Know Your Customer (KYC)? 

 KYC, or Know Your Customer, is the process of verifying a customer’s identity to ensure they are providing accurate personally identifiable information (PII) as well as in order to understand their past financial behavior with previous institutions or money service providers. This process helps to ensure that the financial institution’s services are not misused for identity theft, money laundering, and the funding of criminal organizations. KYC ensures that organizations are both compliant and that customers with a suspicious financial background are not approved for an account at the bank or financial institution. Are you wading through possible KYC solutions looking for one that has the experience and truly global data? IDMERIT can help you comply with local and international regulations. 

It is now mandatory for all financial institutions or banks to administer identity verification as part of their KYC compliance. This quick KYC compliance checklist will assist your institution in developing a KYC compliance program. Implementing proper kyc identity verification is paramount to your organization’s safety and risk mitigation. 

What Is KYC Compliance?  

A KYC verification is conducted by a bank’s system, or through IDMerit’s identity verification system, whenever a customer applies to open an account. To have a smooth transaction process, they must verify themselves by going through an identity verification process. This process entails the customer submitting certain verification documents that authenticate their identity and financial background. This identity verification process brings to light any risk of potential financial crimes and assists banks and financial institutions with taking the appropriate action depending on the risk profile.  Many kyc solutions don’t go far enough to educate clients on proper identity verification regulations. Make sure you choose wisely. 

Does your bank or financial service firm conduct kyc identity verification during onboarding? Be sure to implement  KYC identity verification with IDMERIT today.

Know Your Customer 2021 Regulations Roundup

Identity Document Tampering Challenges Still Exist 

Banks that offer remote KYC when verifying customer identities should be aware of specific security risks which include identity document tampering. Bad actors and fraudsters will use any means they can to achieve their final goals without regard to the cost involved or the security safeguards they must overcome. This is seen both in online and in-person fraud attempts. Global identity verification service IDMERIT specializes in assisting banks with complying with customer due diligence requirements and in helping them detect identity document tampering. Without proper KYC identity verification, fraudulent identity documents become the norm rather than the exception. 

Methods typically used in identity document tampering to evade digital id verification

 systems are:

  • scratching
  • dissolving
  • cutting
  • opening using heat, solvents, and tools
  • adding a foil on top of the card with the impostor’s data

In addition to the United States, countries around the world continue to develop new frameworks for both identity and aml verification. It is mandated by regulators that banks verify the identity of each customer during the onboarding process to protect the bank and financial system. 

Know Your Customer regulations are changing daily. Are you compliant? Contact our Identity Industry Executives to learn more about how IDMERIT can help you become compliant. 

2021 Know Your Customer Regulation Roundup

This year major laws and regulations came into force and more are in the pipeline to be passed. Around the globe, there are major issues both in the cryptocurrency space and in the banking sector among many others. Fraudsters and bad actors seem to be having their way with the financial system, and money laundering and terrorist financing are rising due to innovative new ways identity documents are being forged and spoofed. In addition, biometrics aren’t being implemented fast enough, as the learning curve and cost prohibit even large retailers to become compliant. Be sure your kyc solutions comply with the regulations below. Are you aware of the KYC identity verification regulations for your local jurisdiction? 

US FinCEN Offers Guidance On The Final Customer Due Diligence (CDD) Rule

The Financial Crimes Enforcement Network (FinCEN) recently released guidance in the form of answers to frequently asked questions regarding the recently adopted Final CDD Rule.  

In the Frequently Asked Questions guidance, FinCEN clarified how covered financial institutions (such as banks) should conduct customer due diligence should occur beyond the initial customer onboarding process. In its guidance, FinCEN clarified that, “[c]overed financial institutions must establish policies, procedures, and processes for determining whether and when, on the basis of risk, to update customer information to ensure that customer information is current and accurate.

Information collected throughout the relationship is critical in understanding the customer’s transactions in order to assist the financial institution in determining when transactions are potentially suspicious.” The answers to these questions clarified the roles and responsibilities banks have to further develop, and integrate, ongoing customer due diligence and information programs to lower the risk of anti money laundering and terrorist financing. Many kyc solutions choose to only spot check regulation changes. IDMERIT focuses itself on keeping abreast of regulatory changes in the United States and around the world. 

The CDD rule requires banks to: 

  • Identify and verify the identity of customers
  • Identify and verify the identity of the beneficial owners of companies opening accounts
  • Understand the nature and purpose of customer relationships to develop customer risk profiles
  • Conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information

Does your organization invest in proper Know Your Customer (KYC) identity verification? 

Sixth Anti-Money Laundering Directive (6AMLD)

Originally this piece of legislation was planned to be put into force in 2021 but due to rising reports of fraud and money laundering, the 6AMLD enforcement was pushed up to December 2020.  On the 3rd of December 2020, Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law (also known as the “6AMLD”) came into force. Peter Mizzi, Compliance & AML Advisor at Camilleri Preziosi Advocates, commented on the Directive stating that it, “aims to enable financial institutions and authorities to do even more in their fight against money laundering (ML) and terrorism financing (TF), by closing gaps and loopholes in existing legislation, clarifying regulatory details and toughening criminal penalties across the EU.” KYC solutions should integrate compliance mechanisms for both local and international clients. 

This directive brought about much more clarification and transparency in regards to the following areas:

  1. List of offenses: environmental crime and cybercrime added as offenses
  2. Money laundering: definitions of what constitutes money laundering were clarified 
  3. Scope expanded: increased liability to allow prosecution of both individuals and businesses
  4. Stricter persecution & punishment: possible sentences expanded to four years as opposed to previous one-year terms

EU Commission Proposes Markets in Crypto-Assets (MICA) Regulation

Patrick Hansen, Head of Blockchain at Bitkom, and a Stanford Law School’s “RegTrax” blog Contributor for the European Union. Patrick states, “ The proposal is part of a comprehensive “Digital Finance Package,” which also includes other documents such as a “Digital Finance Strategy,” a “Retail Payment Strategy,” and legislative proposals for a “DLT Pilot Regime” and for more “digital resilience” in the financial sector. Once adopted and in force, the MiCA will be the directly applicable law in all EU member states and regulate all issuers and service providers dealing with crypto-assets.”

The MICA Regulation’s objective is to accomplish the following: 

  • Establish specific rules for ‘stable coins
  • Uniform rules for crypto-asset service providers 
  • Replace existing national frameworks applicable to crypto-assets not currently covered by existing EU laws

Despite the major changes, many crypto exchanges and banks do not have stringent identity verification or Know Your Customer procedures in place.

Final Thoughts 

Identity verification and changes to the regulatory landscape have caused banks, financial institutions, and multinational corporations to stand on their toes and attempt to catch up. With fraud and money laundering offenses being committed every day and budgets tightening, it is a very different world from one year ago. If left unchecked, and if companies fail to implement customer due diligence through KYC processes, fraud and money laundering will escalate until it reaches a breaking point. IDMERIT can help your organization comply with new AML/CFT regulations so you can rest easy that your organization is protected from fraud, abuse, and high levels of risk. 

IDMkyX: Onboarding Honest Customers Faster

IDMscan and IDMkyc are 2 key solutions that are part of the IDMERIT IDMkyX platform that support age verification. 

  • We can validate Passports, Drivers Licenses and National ID’s from 220 countries and territories.
  • Biometric facial recognition & face liveliness technologies are used to produce a live match.
  • Multi-Language support 
  • Easily integrate into your system with a simple API.
  • Validate someone in less than 30 seconds
  • Access over 440 official data sources in 175+ countries

Contact one of our identity specialists to Schedule a Demo of IDMscan today.

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Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the ongoing development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business.

Posted in KYC
Tony Raval
Tony Raval

Tony Raval brings more than 15 years of leadership in data technology as the Founder and CEO of IDMERIT, headquartered in Carlsbad, California. He leads an executive team including top data tech veterans to execute on his passion of creating a global data universe generating true and trusted intelligence. IDMERIT’s competitive success has come from the company’s ability to perform cross-border transactions, for which Tony and his team have developed a meticulous process and progressive technology. The company was launched as the result of a highly effective engagement with a leading global financial institution, whereby the company was uniquely able to triangulate multiple elements to create a comprehensive, and yet, frictionless experience. Tony has provided data intelligence to companies such as Google, SalesForce, and HP as well as clients across financial, government and other sectors seeking a superior partner in compliance and mitigating risk. He holds a Master’s Degree in computer engineering and data sciences, is an active member of the Entrepreneurs Organization San Diego and dedicated mentor to new entrepreneurs in EO’s Accelerator Program, enjoys meditation and running, and he and his wife Sonal recently celebrated their three-year-old son's birthday.

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