WIREDGOV

The role of retrospective ID investigation in delivering AML / KYC compliance

By Barley Laing, the UK Managing Director at Melissa

Fraud is becoming a serious problem in the public sector as interactions in the digital space become more prevalent.

Already the taxpayer is estimated to be losing up to £51.8 billion every year due to fraud and error in public spending, according to the Public Accounts Committee – a sum larger than the UK's annual defence budget. This is set to be exacerbated by COVID-19 with the same Committee anticipating that between 35% and 60%, equivalent to £16 billion to £27 billion, of loans issued through the Bounce Back Loan Scheme may never be repaid due to online fraud or credit risks.

More stringent AML / KYC regulations

The public sector is not the only one that’s experiencing issues with fraud, every industry is. Laws are evolving to meet the new challenges, including the EU’s Fifth and Sixth Anti-Money Laundering Directives (5AMLD and 6AMLD), which have been passed in quick succession over the last couple years.

While the UK has adopted the 5AMLD and not the 6AMLD, it’s essential that leaders in the public sector have knowledge of all existing and proposed legislation in this area, as the attempts to clampdown on evolving areas of online fraud continue.

One of the biggest challenges for public bodies is not only being ready for the new AML and KYC laws when it comes to onboarding new users for services online, but having the foresight to consider if previous onboarding procedures meet the new regulations. If they don’t, they could be in breach of the new laws with the data that they store on citizens.

Retrospective ID investigation

Historic data held on the public must be compliant with new AML and KYC laws and regulations. To achieve this retrospective ID investigation is the way forward.

One way to deliver it is via actively engaging with those already on your database. This means re-engage with those registered for your services when new regulations come on stream, like 5AMLD. It’s an approach that not only ensures compliance, but it’s a useful method to gain further user insight and updates that can be used for future targeting. However, those who take this route will find it’s not only costly, but the additional administrative communications can irritate those that receive them.

The alternative is to employ existing technology to undertake a ‘live re-onboarding’ automated process that operates behind the scenes, without engagement with the public. This can be delivered using electronic ID verification (eIDV) - a significant tool in the public sector’s fight to combat fraud. Such a tool can run cross-checks in real time against the data provided by the prospective user of a service as they complete an online application process. Importantly, it can also be used to undertake large volume retrospective ID processing, and help public bodies avoid the manual input of historical data for checks.

eIDV works by matching someone’s name, address, date of birth, email address or phone number against reputable data streams, like government agency, credit agency, and utility records, in real time. This not only provides the people being onboarded with a smooth customer experience, but also delivers immediate retrospective ID processing. This makes it a go to best practice tool for both new user onboarding and retrospective ID investigation.

To effectively function the eIDV service requires access to billions of global records. This includes politically exposed person (PEP) lists from around the world, in addition to the various global watchlists, adverse media and sanctions checks for AML.

With all this insight eIDV tools can enrich contact data by highlighting and correcting any inaccuracies and adding missing data where available.

Technology to determine authenticity

For ‘live re-onboarding’ to take place, public bodies also need document scanning technology to check and confirm the authenticity of driving licences, passports and utility bills, for example, which are items already likely to be held on file and stored for customer due diligence. This requires using appropriate optical character recognition (OCR) and machine readable zone (MRZ) technology which, in real time, can determine whether the ID document is real and valid – eliminating the potential for human error. In addition, the photo ID embedded in these scanned documents supports biometric ID verification, such as facial recognition, which helps those in the public sector to securely speed up engagement with customers. 

The automated approach offered by OCR and MRZ to document verification is much better than the manual method. It can be difficult for staff to identify forged or fraudulent documents, and they could make mistakes. Employees may be hampered by a limited knowledge of ID document types, of which there are thousands worldwide, that can cause review-related delays. Also, records required for ID checks can be held in hard copy at various locations, making the process time consuming and quality control difficult.

With public sector budgets under extreme pressure, there is little justification for continuing spending money on manual ID checks when speed and accuracy are effectively offered via automation.

Artificial intelligence (AI) and eIDV to deliver KYC / AML compliance

AI is set to play an increasingly important role in eIDV, by helping to deliver KYC and AML compliance, both in user onboarding and retrospective ID investigation. One form of AI, semantic technology, associates words with meanings and recognises the relationship between them. The machine reasoning and automated pattern recognition provided by this technology can identify possible fraudulent applications in real time. Also, through semantic technology, it is possible to apply context and make inferences with data; this ensures properly validated identities as well as broader data quality and integrity.

The emergence of increasingly stringent AML and KYC regulations at a global level means retrospective ID investigation cannot be avoided if compliance is to be achieved. The answer is for public bodies to leverage existing technology, such as eIDV, and document verification, to launch an automated ‘live re-onboarding’ process behind the scenes. It’s the fastest, most efficient and cost effective solution. Furthermore, it’s technology that can be successfully used at the onboarding stage to ensure AML and KYC compliance.

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