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Everything seemed perfect, multiple promising calls, great rapport, and a generous budget on the line. Then, the shocking truth hits — your ideal client turned out to be part of a notorious money laundering syndicate, putting your business at significant risk. A hefty fine could leave you wishing you had learned this sooner.
In today’s fast-paced digital world where businesses are increasingly conducted remotely, verifying a client’s identity is no longer just a checkbox. It is a crucial part of the onboarding process that builds trust, protects your business, and safeguards against evolving criminal tactics, including identity spoofing and deepfake technology.
So, how do businesses navigate the complexities of the evolving dynamics of the onboarding process? Let’s explore the critical steps and learn how to onboard more clients effectively and efficiently in this comprehensive guide.
The Customer Onboarding Process at A Glance
The customer onboarding process encompasses several critical components that ensures your business is dealing with a legitimate person. These include identity verification and performing risk assessments.
This process is essential as it sets the foundation for a positive client experience and long-term relationship. At a glance, the onboarding process typically begins with registration, where customers provide essential information about themselves and verify their identity. Following this, compliance checks and security verifications are conducted to ensure regulatory standards are met, safeguarding both the customer and your business.
By integrating these components, businesses can build a robust framework that not only complies with regulatory standards but also protects itself against exploitation for financial crime. In this article, we will mainly focus on the initial step of the onboarding process — identity checks and verification.
What is Identity Verification?
Identity verification is the method by which a business confirms that an individual customer or entity is who they claim to be. There are two parts to this verification process; the collection of personal information and the verification of the collected information. The identity verification process plays a vital role in keeping bad actors at bay and preventing them from exploiting your business to carry out fraud, money laundering and financing of terrorist groups.
Purpose and Types of Customer Information Collected
When establishing a business transaction, your business should collect adequate information on your customers or partners to put together a comprehensive profile that’ll allow you to mitigate risk associated with money laundering and fraud.
How do businesses determine what ‘adequate’ looks like? We recommend the guidelines from the Monetary Authority of Singapore (MAS) as a practical rule-of-thumb for striking a balance between gathering essential customer information and ensuring that the onboarding process remains user-friendly without burdening your customers with excessive information requests.
For onboarding a customer, businesses need to capture, at the very least, the following information to identify a customer. The essential information required are:
Full name
Date of Birth
Nationality
Identification Number
For successful remote verification, one or more of the additional information must be collected by the financial institution, bank or business:
Contact details such as residential or business telephone number
Proof of residential address
Proof of employment status
Proof of income and income source
Certification of identification documents by lawyers or notary publics
Proof of legitimate account ownership with initial cheque deposit
Any other reliable verification checks adopted by the financial institution or bank
Entities which are governed by jurisdictional regulatory requirements often need more information to be collected for verification. The scope of information collected are expanded to also include one or more of the following:
Name of Company
Business Registration Number
Place of Registration
Date of Incorporation
Nature of Business
Director and Beneficial Owners
Corporate Ownership Structure
Certificate of Incorporation
By following the collection guidelines set forth by regulatory bodies like the MAS, your business can formulate a comprehensive understanding of your customer about who they are, what they do, and most importantly, where their source of funds come from.
Verifying the Information Collected
Having collected substantial information from your customer, it is simply not enough to accept the information at face value. At this stage, it is important to introduce some form of check and controls to ensure that your customers are factually who they claim to be. Before we explore the how, let’s understand the why — why is it important to do so?
Why is it Important to Verify Customer’s Identity?
In the past decade, significant technological advancements such as Natural Language Processing (NLP), Large Language Models (LLMs) and Generative Artificial Intelligence (Gen AI) have fundamentally transformed the way criminals carry out fraud and money laundering, offering them new avenues to exploit weaknesses in our global financial system.
The era of simplistic, low-tech scams, such as phishing emails claiming unexpected inheritances, is long gone. Today's fraudsters employ advanced techniques, including sophisticated deep fakes, intricate spoofing methods, generative AI, and hyper-realistic AI voice cloning. These technologies enable them to convincingly mimic legitimate customers, allowing them to successfully execute fraud schemes.
This poses significant risks to a business because traditional screening methods, such as assessing a customer's legitimacy through submitted video information or live video calls, are becoming increasingly less effective. So, what alternative methods can your businesses adopt to combat these technologically-empowered criminals?
How to Verify the Identity of Your Customers?
Businesses have numerous techniques at their disposal to verify customer identities. As technological threats continue to evolve, it's crucial to accurately evaluate the legitimacy of these customers. Here are some of the most effective verification methods available for your business:
Biometric Verification
Biometric technologies such as facial verification, are increasingly utilised for its ability to deliver precise and frictionless identity verification. The technology analyses an individual’s unique facial features, making it difficult for fraudsters to replicate identities.
Advanced facial recognition technology captures the customer’s facial data and compares it against submitted identification documents to ensure consistency, effectively reducing the risk of identity fraud.
Identity Document Verification
While an identity document can look and feel legitimate with seemingly consistent data and a high-quality finish, these submitted documents are also susceptible to forgery and tampering. Hence, it is critical to verify the genuinity of the document with the help of AI technology.
An advanced identity document verification technology should incorporate multi-dimensional checks to verify the authenticity and validity of identity documents. The Identity Document Verification technique can be further enhanced with the use of Optical Character Recognition (OCR) technology to streamline data extraction to eliminate risk of data errors and omission arising from manual input.
Liveness Test
Fraudsters are increasingly utilising sophisticated techniques such as deepfakes and advanced identity spoofing to impersonate individuals and defraud businesses out of their money. To counteract the risks posed by these technologies, liveness tests have been developed and used in customer identity verification across many industries.
The tests are categorised into passive and active forms, and its robustness can be determined in terms of the number of dimensions they incorporate or address. The most basic form, the 2-Dimension (2D) or Passive Liveness Test, deals with analysis of a static image, such as an image of facial information captured at the onset of the onboarding process.
The more advanced form, the 3-Dimensional (3D) or Active Liveness Test on the other hand requires customer interaction such as blinking, performing head movements across multiple axes or engaging in other dynamic actions. Today, some of the advanced providers introduce a 4th Dimension — also known as the Time-based element, requiring users to complete the interactive verification tasks within a stipulated period of time.
Multi-Factor Authentication
Multi-Factor Authentication (MFA) enhances security by deploying a combination of verification methods, including passwords, biometric identifiers, and device-based checks to mitigate risk of identity theft and fraud.
By implementing MFA, organisations can ensure that only the legitimate account holder has access to their account, safeguarding sensitive information and preventing unauthorised usage for illicit activities. Moreover, adopting MFA not only strengthens account protection but also helps organisations comply with regulatory standards, as many sectors require robust identity verification processes to protect customer data.
Public Record and Database Reviews
Verifying a customer’s information against public records and databases not only helps your business confirm a customer’s identity but also aids in identifying potential risks associated before establishing a business relationship with them.
Advantages of an Effective Identity Verification Process
Implementing a robust identity verification process helps your business mitigate risks and ensure compliance with global regulations.
Risk Mitigation
A comprehensive identification process, lowers risk of identity fraud and protects your business from financial losses and reputational damage. By verifying and confirming the legitimacy of customers before granting them access to your products or services, your business can also protect itself from being exploited for fraudulent activities, money laundering and other related crimes.
Compliance with Regulations
Effective identity verification ensures that your business adheres to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations where non-compliance can result in substantial fines and legal complications. Erosion of trust between your business and customer can also take place leading to significant financial losses.
While the advantages of a robust identity verification process are clear, many businesses lack the necessary resources and manpower to implement these systems effectively. Leveraging technology at this step of the process is crucial in alleviating the resource bottleneck and enabling businesses to gain a competitive edge.
Why Leverage Technology to Streamline Identity Verification Process?
As regulations grow in complexity and frequency, compliance teams must adjust to new requirements while juggling current workflows. This often results in increased pressure and a greater risk of non-compliance.
By adopting technology that automates the identity verification process, organisations can effectively address changing regulatory demands and enhance their compliance functions, making them more agile, efficient, and effective. This strategic move not only reduces compliance risks but also empowers teams to succeed in an increasingly intricate regulatory landscape.
Key Considerations When Looking for a Solutions Provider
When you are ready to take the crucial next step in elevating your customer onboarding process, here are several key considerations for you to take note when embarking on your research:
Advanced Identity Verification Capabilities
The solution provider should have at least one, a combination of, or all of the advanced identity verification techniques discussed in the preceding section above. This is to ensure that the solutions are comprehensive enough to combat emerging and advanced forms of identity fraud risks.
Bonus tip: Solution providers that offer active 3D liveness tests can help your business prevent fraud that deploys advanced deep fakes and video spoofing techniques.
Automation Capabilities
Repetitive tasks such as data entry and identity document collection should be fully automated. Human oversight should only be introduced at strategic steps of the workflow where it is absolutely critical in improving likelihood of the desired compliance outcome.
Bonus tip: an always-on, fully digital, self-service customer onboarding platform enables your business to remotely onboard customers from anywhere in the world without being limited by time zones or business hours. This flexibility allows for a frictionless experience and can significantly enhance operational efficiency.
Data Protection and Information Security
Thoroughly evaluate potential solution providers for their data protection and security protocols. This assessment is crucial when dealing with significant amounts of sensitive customer information. The last thing your business wants is a data breach within the information flow, as it can severely damage your business's reputation.
Bonus tip: While there are numerous information security certifications available, ISO/IEC 27001 is considered as one of the most robust due to its extensive and demanding framework for managing information security risks.
Integration and Scalability
Ensuring that the solutions can be integrated seamlessly with your business’s current workflow is essential for maintaining a smooth onboarding experience. This often involves some form of connection between software applications and enabling them to communicate and share data effectively.
Bonus tip: Look out for solutions that also offer SDK and API integration as these features are cornerstone in ensuring easy integration, synchronised data from one process to the next, along with the ability to also scale up as your business grows.
Streamlined Workflow
After collecting information and performing thorough identity verification checks, the next step in the process is to screen your customers against leading risk and compliance databases and conduct a risk-based assessment. It is a common practice for businesses to adopt solutions from different providers along the compliance chain as there is no one solution that fits all business requirements. However, consider using a single provider for your business’s AML and KYC needs.
When your business opts for solutions from a single provider, it simplifies workflows, reduces operational friction, and ensures consistent data quality, thereby effectively eliminating compatibility problems. This cohesive approach helps streamline processes and enhances overall efficiency. From a lifecycle cost perspective, this approach is often more economical, as it consolidates subscription fees, training, and support, thus eliminating redundant processes and expenses.
Bonus tip: Seek out providers that offer solutions targeted at multiple aspects of the KYC and AML compliance process. Advanced providers offer a streamlined workflow that integrates all critical components of the AML process, from customer onboarding and risk scoring to transaction monitoring and ongoing due diligence. This comprehensive approach ensures that every stage of compliance is covered effectively and efficiently.
Introducing Ares: Our Digital Onboarding Solution
In the wake of the global pandemic, which has accelerated the digitisation of the economy and transformed consumer interactions with financial institutions and businesses, our team at Cynopsis developed a comprehensive digital onboarding solution to tackle the new challenges in customer identification and verification.
Introducing Ares, a platform designed to automate the identification and verification workflow at the onset of the customer onboarding journey. By leveraging AI and advanced identity verification technologies, Ares helps businesses offer a frictionless onboarding experience for both individual customers and corporate clients, anytime and anywhere.
Key Features of Ares
A powerful digital onboarding solution can significantly enhance your customer identification and verification process, enabling you to onboard more clients both effectively and efficiently. In this section, we will delve into the key features that make Ares an outstanding choice for your business’s customer onboarding needs:
Advanced Identity Verification Methodologies
Ares is equipped with a comprehensive set of advanced verification features. These include:
AI-Powered Identity Document Verification to confirm the authenticity and validity of identification documents
Active 3D Liveness Tests designed to thwart deepfake injections and spoofing attempts
Dynamic Face Compare that matches captured facial recognition data with submitted documents to prevent identity theft and fraud.
Additionally, Ares also offers many other useful verification features such as phone and email verification to enhance the compliance outcome.
Complete Workflow Orchestration
Ares is an always-on, self-serve platform where customers are guided through an intuitive interface with on-screen instructions to submit their information and identity documents for verification purposes.
From initial signup and login all the way through to obtaining the verification results on your backend, the entire process is completely automated requiring little-to-no human intervention, allowing your team to optimise your resources to deal with high-risk clients while securely and quickly completing processing of low-risk customers.
Ares is also flexible and accommodates fringe cases with its built-in e-Appointment scheduling function, allowing your compliance team members to request for additional onboarding interviews to obtain more information where required.
Tailored Workflow for Individual and Corporate Clients
Ares adopt separate workflows for individual customers and corporate clients due to differences in informational requirements. The user input fields are designed according to MAS guidelines to ensure that the data obtained from the users cover a wide range of identification points.
Additionally, the e-questionnaires are fully customisable and can be tailored according to your customer identification requirements in the jurisdiction where your business operates.
Extensive ID Document Coverage with OCR-Assisted Workflow
Ares accommodates over 2,500 types of identity documents from more than 140 countries, offering extensive market coverage that enables your business to onboard customers globally.
With a workflow empowered with OCR technology, Ares provides a frictionless onboarding experience. Customers can easily scan their ID documents, allowing the technology to rapidly capture and accurately transcribe the data into a secure digital format for verification. This eliminates data entry errors and omissions, enabling your compliance team to concentrate on more critical tasks, rather than engaging in manual, repetitive work.
Scalable and Option for Custom Brand Integration
Ares offers both SDK and API integration, enabling your business to effortlessly incorporate our solutions into your existing applications while ensuring scalability to meet future demands as your business evolves.
If you're not entirely satisfied with the appearance of our solutions, Ares provides a white label option where we work hand-in-hand with you to customise the front-end user interface and user experience design. This allows for seamless integration with your existing brand identity, creating a unified brand experience for your customers.
Robust Data Protection and Information Security
Our AML and KYC solutions are proudly ISO/IEC 27001:2022 certified, which means we adhere to stringent data protection and information security standards. The certification not only reinforces our commitment to safeguarding your sensitive customer information but also ensures that our solutions fully comply with regulatory requirements.
Seamless Integration with Artemis
Most importantly, Ares integrates seamlessly with Artemis, our Customer Lifecycle Risk Management solution. This integration allows businesses to securely transmit the captured identity data and streamline the onboarding process for further, advanced customer due diligence processing.
Artemis comes with a wide range of powerful due diligence functionalities which includes performing comprehensive screening for politically exposed persons, sanctions, adverse media, unwrapping of ultimate beneficial ownership, risk assessments and scoring, periodic reviews, ongoing monitoring and many more, all in one robust platform.
Find Out More From Our Solutions Experts
Curious about how Ares can support your onboarding process? Schedule a live demonstration with our solutions experts, who will guide you through the entire process and address any specific concerns or unique requirements you may have. The personalised session is designed to provide you with valuable insights into maximising the solution’s potential for your business!
Concluding Thoughts
The customer onboarding process, especially regarding identification and verification, may seem straightforward; however, it is often laden with complexities that require careful navigation. To safeguard your organisation from the risks of money laundering and fraud, we’ve explored the essential elements of managing the customer identity verification process—covering the what, why, and how.
While technology has undeniably enhanced productivity, it has also introduced new and emerging risks, transforming the tactics employed by criminals. Compliance officers and teams must harness technology not just as a tool for efficiency, but as a powerful ally in fortifying defences against this new era of sophisticated bad actors.
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