The Government’s amendments to the Money Laundering and Terrorist Financing Regulations (MLR) are coming into force. This is the result of the transposition of the EU’s Fifth Money Laundering Directive, as well as a set of standards set by the Financial Action Task Force (FATF).
These amendments extend the obligations to meet the MLR requirements to other sectors, which means that they will be obliged to perform ‘Know your Customer’ (KYC) checks and potentially monitor certain transactions. For example, cryptoasset activities will now fall under the scope.
Furthermore, businesses will also need to consider new high-risk factors when determining whether enhanced due diligence is required. For example, insurance companies may have to perform a ‘know your customer’ (KYC) check when a customer is the beneficiary of a life insurance policy. As another example, art galleries and art sector intermediaries trading with the UK will have to do the KYC checks for transactions worth €10,000 or more (currently around £8,500).
The MLR also includes a provision for the use of digital identities for KYC purposes. The inclusion of digital identities is helpful for firms, especially those who are new in the scope of the regulation.
Digital identity platforms provide an outsourced technology solution for identity verification when onboarding clients through digital channels. It provides a convenient customer experience as the necessary information can be provided without the need for face to face engagement. This process can also help to significantly reduce the time of onboarding to minutes or even seconds, and significantly lower costs and risks associated with manual checking.
The MLR mentions that the process needs to be ‘secure from fraud and misuse’. When partnering with a digital identity platform (DIP), businesses need to consider the controls implemented by the DIP in order to ensure that the customer is a real person and that they are who they say they are. The use of biometrics, liveness tests and anti-spoofing technology is the key to preventing fraudsters from committing impersonation fraud, as it is the most secure way to match a real person with a photo government-issued ID.
The regulations also say that the process should be ‘capable of providing an appropriate level of assurance’. In order to achieve a high level of assurance the DIP should combine the use of AI alongside human overview to successfully and securely verify people’s identities.
To see the full legislation you can visit the following link.