Crypto currencies, wallets and exchanges are changing the financial system and we no longer need to depend on banks and their complex networks for money transfers. Crypto wallets and exchanges resemble regular financial institutions and cryptocurrencies are almost like any other currency.
Many criminals and dubious individuals are at the same time attracted to cryptocurrencies. Cryptocurrencies give them excellent opportunities to launder the returns from their activities while hiding their origins. Privacy has always been one of the core values of cryptocurrencies and still is today to a large extent.
The traditional financial system has been fighting money laundering and terrorism financing for years. Regulations that form the basis for this such as the fifth and sixth anti-money laundering directives (AMLD5 and AMLD6) in Europe and FinCEN’s Final Rule in the USA, are tightening and removing loopholes.
Virtual currencies and the exchanges on which they are traded are subject to anti-money laundering legislations too. That means that the exchanges must know who their customers are, by verifying identity, checking for politically exposed persons and check sanction lists. And this must be done on a regular basis.
The ‘Know your customer’ or ‘Customer Due Diligence’-process has changed over time to adapt to new regulations and customer needs. Historically, financial institutions would receive their customers in their offices to perform the KYC checks. Customers would show their identity document and sign forms by hand.
Currently the standard KYC-process is online and digital, mobile even. Customers expect their financial service provider to onboard them 24/7 via web or app. Providers that do not live up to this expectation, will see their prospective customers move to competitors who do. For the fourth consecutive year, Signicat’s report ‘The Battle to Onboard’ shows research results that substantiate this. A large number of financial customers in Europe (63%) did abandon an onboarding process during 2020.
New technologies make it possible to live up to customer expectations and increase conversion rates and still be compliant. The good old identity document check can be performed by using technologies such as Optical Character Reading (OCR), Near Field Communication (NFC) and even video. This enables financial institutions and other companies to perform a KYC check digitally, remote and 24/7.
In addition to this, there is the rise of electronic identities like BankID (NO, SE), NemID (DE), iDIN (NL) and Itsme (BE) that further drive innovation forward. Based on previous identification, private individuals can use these services to proof their identity and share personally identifiable information. The great thing is that these eID’s work with multifactor authentication.
Designing a KYC-process means finding the right balance between compliancy and user experience, without compromising on either one. That is why it is so important to keep the end-user in mind without neglecting regulations. How will the end-user experience this process? What technology will the end-user be able to use? What attributes do I need from the end-user? What attributes do GDPR allow me to save?
The Signicat Digital Identity Platform gives you maximum flexibility to orchestrate your own KYC-process, activate the best fitting digital identity services for the end-user and meet regulations all at the same time. One vendor, one platform, an abundance of possibilities.
Edwin de Ron
Edwin is a Senior Account Executive for Signicat in the Netherlands.
March 03 2021