The UK implemented the provisions of the 5th EU Money Laundering Directive into UK domestic law through the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which came into effect on 10 January 2020.
These amendments recognise the use of Electronic Identification as a reliable and independent source through which to verify a client provided they are free from fraud and misuse and are capable of providing an appropriate level of assurance that the person claiming a particular identity is the person with that identity.
The identification of an individual client is a two-part process. You first need to identify the client by obtaining a range of information such as their name, address, and DOB, etc. Secondly you must verify their identity using reliable and independent sources. This evidence can take several forms and can be documentary through a passport, driving license, utility bill, etc. or electronic online client verification, or a combination of both.
How much evidence to ask for to be reasonably satisfied as to client identity is for you to decide based on your risk-based identification and verification procedures. The onus is on you to satisfy yourself, and ICB as your supervisor, that the client is who they purport to be.
Choosing the right Electronic ID Verification tool for AML
There are many electronic identification tools on the market, and you’ll need to ensure your chosen tool is sufficiently reliable, comprehensive, and accurate.
Look for a system that has:
- Information from multiple sources
- There are systems out there which only use single-source data such as the Electoral Roll, which on its own is not considered sufficient evidence
- Positive and negative data sources
- Positive data will verify details such as name, permanent address, date of birth and so on. Negative data refers to known incidents of fraud, including identity fraud. A database that draws both positive and negative data will provide a more complete picture of a client.
- Access to data sets such as electoral rolls, all bank accounts, credit cards, mortgages, loans, etc (all shared with the financial services industry), CCJs, IVAs and insolvencies, FTSE 350 shareholding, directors at home, PAF, deceased persons files, stolen passports lists, PEP and sanctions files, previous searches and more. Regular data updates as those which don’t are more prone to inaccuracies especially in relation to address and credit history.
- Built-in qualitative tests to check the integrity of the data
A word of warning
Using electronic ID verification only confirms the existence of a person, not that your client is that person. In accordance with the risk-sensitive approach, for higher risk persons you may wish to obtain additional verification evidence or remain alert to evidence that might suggest that they may not be who they say they are (e.g. do they ask you to send your letter of engagement or other documents and correspondence to a different address). The best form of verification is still achieved by meeting a client face to face and checking photographic identification in their presence.
You should consider your own client identification needs and not simply conclude that an “off the peg” product will be appropriate in all cases. If you do use these services, be prepared to supplement the information obtained if it is appropriate to do so, and to give you a level of satisfaction you are comfortable with. Remember it is you who will have to demonstrate that you took all reasonable steps to satisfy yourself that the client is who they purport to be.
A final thought
Do remember that client identification is only one step in the CDD process, you must also assess, and where appropriate, obtain information on the purpose and intended nature of the business relationship. The amendments to the regulations now require, where a client is a legal person, trust, company, foundation or similar legal arrangement, that you take reasonable measures to understand the ownership and control structure of that legal person, trust, company, foundation or similar legal arrangement and this is still best done through a face to face meeting.