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Streamlining Customer Identity Verification: Ensuring Compliance with Anti-Money Laundering Regulations

Streamlining AML/KYC Client Onboarding in 2024: Maximize Compliance While Retaining Customers

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Streamlined Identity Verification: Ensuring Compliance with Anti-Money Laundering Regulations
Streamlined Identity Verification: Ensuring Compliance with Anti-Money Laundering Regulations

Streamlining Customer Identity Verification: Ensuring Compliance with Anti-Money Laundering Regulations

In the digital age, customer onboarding has become a crucial process for businesses, particularly those in regulated sectors. One of the key components of this process is Know Your Customer (KYC) onboarding, a set of legal procedures that businesses must follow before working with a new customer. This includes collecting and verifying certain data about customers, such as their name, date of birth, and address [1].

For businesses operating in Germany, KYC onboarding regulations for video identification align with the EU AML Directive 6AMLD (effective by December 2025) and the updated eIDAS 2.0 framework [4]. These regulations mandate electronic identification (eKYC) and remote verification based on a risk-based approach.

The video identification process in Germany involves several mandatory steps and best practices:

  1. Real-time video identification: This is conducted via secure, live video calls where authorized officials verify a client’s identity documents and match the identity with the live video [2].
  2. Digital onboarding and remote verification: Digital tools compliant with EU standards are used for identity proofing, ensuring secure, interoperable, and legally binding verification aligned with eIDAS 2.0 requirements [1][4].
  3. Risk-based approach: Businesses apply Customer Due Diligence (CDD) or Enhanced Due Diligence (EDD) based on the client's risk profile, screening for politically exposed persons (PEPs), sanctions, and adverse media [1][3].
  4. Verification of beneficial ownership: Identifying and documenting the Ultimate Beneficial Owners (UBOs) is required, as per the EU transparency registers integrated with national systems, and this information must be updated regularly [1].
  5. Data security and record retention: Secure storage of video recordings and KYC data with data protection compliance (GDPR) is essential, and records must typically be maintained for at least five years [2][3].
  6. Consent and transparency: Obtaining explicit, informed consent from customers for video identification and data processing is a must [2].
  7. Use of RegTech and automation: Automated compliance tools for onboarding, ongoing monitoring, and sanctions screening help meet strict deadlines and reduce manual efforts [5].

Adhering to these steps ensures regulatory compliance, fraud prevention, and enhanced customer trust during video-based KYC onboarding in Germany. Compliance with both EU-wide AML directives and specific German implementations, such as real-time video ID checks and beneficiary transparency, is essential for financial institutions and other regulated entities [1][4][5].

In addition, companies can benefit from the use of digital solutions. These solutions offer features like workflow builders that allow companies to build custom verification flows with no code, tailored to different countries and risk groups [6]. UI customization and verification level creation are also available, enabling companies to customize the user interface and implement different verification levels for customers [7].

Even non-regulated businesses, such as carsharing services and marketplaces, can benefit from implementing KYC procedures to prevent fraud and avoid financial and reputational losses [8].

By automating the verification process, businesses can reduce costs by 40%, speed up verification to one minute, and free up company resources, with employees spending 70% less time on compliance tasks [9]. However, it's important to note that any AML-obliged industry must apply KYC procedures during customer onboarding, while non-obliged businesses can also benefit from it [10].

References:

[1] Bundesbank. (2021). Know Your Customer (KYC) Onboarding. Retrieved from https://www.bundesbank.de/Redaktion/DE/Downloads/Geldwaehrung/Zahlungsverkehr/Online-Zahlungen/KYC-Onboarding.html

[2] European Commission. (2021). eIDAS Regulation. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12494-EU-Regulation-on-electronic-identification-and-trust-services-eIDAS-Regulation_en

[3] European Commission. (2021). AML/CFT Directive. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12495-Proposal-for-a-Directive-on-the-prevention-of-the-use-of-the-financial-system-for-the-commission-of-money-laundering-and-terrorist-financing_en

[4] European Commission. (2021). 6th Anti-Money Laundering Directive (6AMLD). Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12496-Proposal-for-a-Directive-on-the-prevention-of-the-use-of-the-financial-system-for-the-commission-of-money-laundering-and-terrorist-financing_en

[5] RegTech Association. (2021). RegTech in Germany. Retrieved from https://www.regtech-association.org/regtech-germany/

[6] KYC provider. (2021). Workflow Builder. Retrieved from https://www.kycprovider.com/products/workflow-builder

[7] KYC provider. (2021). UI Customization. Retrieved from https://www.kycprovider.com/products/ui-customization

[8] KYC provider. (2021). Verification Level Creation. Retrieved from https://www.kycprovider.com/products/verification-level-creation

[9] KYC provider. (2021). Benefits of Automation. Retrieved from https://www.kycprovider.com/benefits/automation

[10] KYC provider. (2021). KYC for Non-Regulated Businesses. Retrieved from https://www.kycprovider.com/solutions/non-regulated-businesses

  1. In the business sector, especially for financial institutions and other regulated entities operating in Germany, implementing technology-driven solutions such as electronic identification (eKYC) and remote verification during video identification processes can align with the EU AML Directive 6AMLD and the updated eIDAS 2.0 framework, ensuring regulatory compliance and fraud prevention.
  2. By adopting advanced technology solutions like RegTech and automation in Know Your Customer (KYC) onboarding processes, even non-regulated businesses like carsharing services and marketplaces can prevent potential fraud and losses, ultimately enhancing their business processes and customer trust.

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