Category: Security

Welcome to our Security category, a specialized space dedicated to delving into the critical aspects of data protection and security in the financial technology industry. We live in an era of digital finance where data breaches and cyber threats have become common occurrences, prompting to become a paramount priority for businesses and customers alike.

Our insightful articles deep-dive into the multifaceted world of fintech, shedding light on the most recent trends in data protection, the challenges inherent in securing digital transactions, and the emerging solutions to these challenges. Our objective is to offer a holistic view of the secure landscape, underlining the significance of solid security measures and the transformative role of technology in amplifying data protection.

At Signzy, our commitment to maintaining the highest echelons of security is unwavering. We design our innovative solutions with a strong foundation to ensure the safeguarding of sensitive data, providing our clients with a sense of assured security and peace of mind.

Whether you’re a fintech professional immersed in the industry, a business leader steering your company through the digital landscape, or just an individual keen on understanding the intricacies of data security, our this category offers a wealth of valuable insights.

We cordially invite you to join us as we embark on an exploration of the fintech domain, discussing the pressing importance of data protection in today’s digital age. This journey will illuminate the challenges, showcase the advancements, and highlight the preventative measures shaping the world of fintech security. Unravel the complexities of securing digital finance with us, and gain a deep understanding of why robust data protection is the bedrock of the digital finance industry.

KYC in the USA- The Origin, Evolution, and Future of America’s Frontier Against Financial Fraud

Posted on | by Signzian

Introduction

In 2017 a survey from FDCI revealed that 25% of all US households were unbanked or underbanked. This meant that more than 30 million households did not have a bank or credit card account. In 2019 the numbers fell to less than 5.4% of the households being unbanked. That was an estimated 7 million households. This indicates the untapped potential in the banking industry.

More customers than ever will start a bank account in the coming years. This pace at which citizens are starting a relationship with a bank is impressive. But how much can we ensure that all the applicants are legit? How can we make sure that no fraudsters are aided? To put things into perspective 2019 alone saw 650,572 cases of identity theft and 271,823 cases of credit card fraud in the US. To prevent this, KYC comes into play.

KYC process in banks is used to obtain information about the customer with their consent. The obtained information includes their identity details and addresses. It ensures that there is no misuse of the bank’s services. This stops fraudsters who try to imitate or forge identities for financial crimes.

We must also notice that fraudsters have found newer ways to evade KYC through the ages. These include digital synthetic ID frauds and scraping for ATOs(Account Takeovers). In 2021, we have enough resources and methods to maneuver the issues with traditional KYC processes. An upgrade is inevitable. The introduction of Digital KYC is set to change the whole process of onboarding. Let’s have a detailed look at the KYC process in banks in the US and what its future holds.

Does KYC Require The Attention It Demands?

Before the introduction of the KYC process in banks, fraudsters conducted crimes without much resistance. The lack of regulation coupled with unverified customer identifications caused easy manipulation of the financial system. Combatting this was inevitable. With the introduction of KYC financial crime has reduced, but new challenges await the sector.

According to a report from Atlas VPN, Q1 2020 saw a 116% increase in loan/lease fraud, alone. Credit Card frauds were at an all-time high of 435.8% during the same quarter. To add flame to the fire, overall fraud reports compared to Q1 2015 were over 435%. We can not attribute this to solely human errors or insufficient data collected.

The real culprit( other than the fraudsters, of course) is the inefficient handling of KYC. It might come as a shock that all this fraud occurred even after concerned institutions implemented the KYC process in banks. One can only imagine the outrageous leaps these numbers might have taken if such a regulatory process didn’t even exist.

KYC acts as the firewall against these fraudsters, but with advancing technology and global connectivity the fraudsters have an edge. The era of traditional KYC is nearing dusk. It is only a matter of time before the government brings regulations and advises for digitized KYC process in banks.

The primary objective of KYC is not fraud prevention, even though it does filter out the fraudsters for the better. The Patriot Act intended CIP or KYC to prevent Terrorist Funding and Money Laundering. To an extent, it has been effective. But as all things go, it can be better. This is where banks should upgrade their processes..’ A system devoid of human errors and manual processing will be the next step for this.

How KYC process in banks Came Into Being In The US

 

The need for KYC came with an increase in financial crimes in the Country. Every decade fraudsters find ways to commit crimes avoiding the regulatory oversight. To eliminate the problem at the source, the government and experts came up with KYC. Proper verification of the customer helps identify fake and fraudulent activities if any.

Though KYC was introduced under The USA Patriot Act, its history spans several decades before. Here is an overview:

  • In 1950, Congress passed the Federal Deposit Insurance Act to govern FDIC( Federal Deposit Insurance Corporation). It had regulations for banks to comply with to be insured by the FDIC. This was the first primitive step towards modern KYC.
  • In 1970, Congress passed the FDI Act Amendments also known as the Bank Secrecy Acts(BSA). It was a modified take on the FDI Act adding five types of reports for banks to file with the Treasury Department and FinCEN.
  • On October 26, 2001, Congress passed the USA Patriot Act. This act contained all the ingredients for modern manual KYC.
  • On October 26, 2002, The Secretary of Treasury finalized regulations defining KYC mandatory for all financial institutions. All associated processes conformed to CIP(Customer Identification Program) under this act.
  • In 2016, FinCEN made it necessary for banks to collect the name, address, social security number, and date of birth of persons owning more than 25% of an equity interest in any legal entity.

KYC was met with mixed reception during the two decades that have passed since it became mandatory in the US. Nonetheless, none of its criticism countered that KYC helps ensure safety and prevent fraudulent activities. Rather most of it was associated with the difficulty in implementing such a procedure and the privacy concerns.

What Does KYC Mean In The US?

KYC refers to the process implemented by a financial institution or business to:

  • Establish verified customer identity.
  • Understand the exact nature of the customer’s activities. This is to confirm that the source of associated funds is legitimate.
  • Assess money laundering risks.

 

It has 3 aspects:

1. CIP- Customer Identification Program

Any individual associated with a financial transaction requires identity verification in the US. CIP ensures this. This is under the recommendation of the FATF( Financial Action Task Force). FATF is a pan-government anti-money laundering organization.

A pivotal element to proper CIP is risk assessment. This has to be at the institutional level as well as at the level of procedures for individual accounts. Most of the exact implementation decisions are left to the institution, but CIP provides a guideline to follow.

The minimum requirements for opening a financial account in the US are:

  • Name of the customer
  • Address of the customer
  • Date of birth
  • Identification Number/ Social Security Number(SSN)

The documents verified for KYC include social security card, passport, driving license, and credit/debit cards. It is up to the institutions to install the necessary protocols for the specific documents.

The institution is to verify this information within a reasonable time. This includes comparing provided information with information from public databases, consumer reporting agencies, among other diligence measures.

2. CDD- Customer Due Diligence

CDD ensures if you can trust a particular client. It assesses the risks and protects the institution against criminals, PEP(Politically Exposed Persons) presenting a high risk or even terrorists.

It has 3 levels:

  • SDD(Simplified Due Diligence)- it is a simplified procedure. The risk of money laundering is low.
  • CDD(Basic or Standard CDD)- standard procedure for average or moderate levels of risk. Performed for most clients.
  • EDD(Enhanced Due Diligence)- Additional information is obtained. It has a clearer understanding to mitigate associated risks. Mostly done in high-risk circumstances.

Some of the important measures taken during CDD are:

  • Confirm the identity and location of the client including a proper understanding of their business venture. This might be a simple act of verifying the name and address of the potential customer.
  • Categorize clients based on their risk profiling. This must be done prior to any digital storing of information and documentation
  • In areas that require EDD, ensure that the entire process is performed. This is an ongoing process as any low-risk client can become high-risk. Thus, periodic CDD is necessary.
  • The necessity of EDD depends on certain factors. These include the location of the person, occupation of the person, types of transactions, and pattern of activity.

3. Ongoing Monitoring

It refers to the program monitoring the customers on an ongoing basis. This includes oversight over accounts and financial transactions. This includes accounts with spikes of activity, adverse media mentions, or any other concerning occurrences. Periodical reviews of accounts and risk factors are done.

What Are The Types Of KYC?

 

Standard KYC

Includes the KYC performed for individual customers and clients. It is most widely done. The process has slight variations depending on the jurisdiction the banks fall under.

KYB- Know Your Business

It is an extension of KYC for anti-money laundering. It verifies a business including the registration credentials, UBO(Ultimate Beneficial Owners), location, and other factors. The institution screens the business against the grey and blacklists that include entities involved in fraudulent activities. It identifies fake businesses and shell companies.

It is also known as Corporate KYC.

KYCC- Know Your Customer’s Customer

It identifies the activities and nature of the customer’s customer of a financial institution. It includes identifying the people involved, assessing the risk levels and major activities of all entities.

eKYC- Electronic KYC

eKYC, also known as Digital KYC is the remote and digital transposition of the KYC process. Authentication is done through electronic and digital methods with verification performed digitally without the requirement of physical documents. It uses the aid of technology like OCR and live-video access.

The Not-Too-Distant Future Of KYC

KYC is criticized for the increase in dropout rates during onboarding as it makes the process more complex. This overwhelms the customers trying to onboard who become reluctant to do business with the banks.

This is worth notice as newer fintech startups are increasing their customer onboarding every year. Since 2018, Venmo has performed KYC on more than 30 million customers before onboarding them. They do this through technology and digitization. eKYC or digital KYC was the key factor that gave such impressive results.

Another concern regarding KYC is the amount of machinery and expenditure associated with the traditional modes. In 2016, regulatory compliance cost banks over $100 billion. This cost was expected to rise by 4% to 10% by the end of 2021 by Forbes. The expenses banks have to bear for KYC compliance is high.

This can be reduced to fascinating degrees with proper digitization of the entire KYC process. The perks of adopting such revolutionary technology will drive companies to success. It is time we understand this and proceed further into the future. For the future is not too distant!

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

The Common Factors Of Global Privacy Framework — A Brief Overview On GDPR, CCPA & DEPA

Posted on | by Signzian

“India needs a paradigm shift in personal data management” — stated in the NITI Aayog draft on DEPA architecture. With the introduction of the PDP Bill, the argument holds rightfully so. We already have the blueprint, so isn’t it time we get started on the building architecture itself? So the DEPA was just a matter of time.

The DEPA framework is robust and unique to Indian data privacy laws. Anyone who goes through the proposal will agree that it overlays some areas which are not unique. These areas can be found in the data privacy framework of other nations as well. Let us take examples of the two prominent ones — Europe’s GDPR and California’s CCPA.

CCPA — Popularity Of Privacy In California

There is no single authority for oversight on data privacy in the U.S.

Instead, the country maintains a sectoral approach. It is dependent on a collective of sector-specific laws and state laws.

 

There are almost 20 industry — or sector-specific federal laws. on the state level, more than 100 privacy laws exist (in fact, there are 25 privacy-related laws in California alone) .

The California Consumer Privacy Act (CCPA) provides citizens of California with 4 rights for power over personal data:

– right to notice

– right to access

– right to opt-in (or out) and

– right to equal services.

Any organization which gathers the personal data of California residents must adhere to CCPA.

Personal Data Classification in CCPA

The CCPA defines personal information as “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” In other words, the State recognizes a “broad list of characteristics and behaviors, personal and commercial, as well as inferences drawn from this information” that can be used to identify an individual. Examples of covered personal information include:

  • Personally identifiable information (PII) . This can be name, address, phone number, email address, social security number, driver’s license number, etc.
  • Biometric information, such as DNA or fingerprints.
  • Internet or similar electronic network-based activity information. This can be browsing history, search history, and information regarding a consumer’s Internet activity.
  • Geolocation data
  • Audio, electronic, visual, thermal, olfactory, data or similar format of data.
  • Professional or employment-related information.
  • Education information, defined as information not readily available for the public.
  • Inferences drawn from any of the above examples that can create a profile about a consumer. This reflects the consumer’s preferences, characteristics, psychological trends. It also displays predispositions, behavior, attitudes, intelligence, abilities, and aptitudes.

GDPR — The European Breakthrough In Privacy

GDPR is an EU regulation that has been designed to protect user’s personally identifiable information (PII). It also enables businesses to hold a higher standard in terms of how they collect, store, and use this data.

Similar to CCPA above, GDPR gives EU citizens control over their personal data. It also assists in changing the data privacy approach of global organizations.

Key Highlights

 

  • GDPR is applicable to all who process “personal data”. Most obviously, these are names, email addresses, and other types of PII
  • It creates significant new responsibilities. Processing personal data makes you responsible and accountable for its security and use.
  • It has a global reach. Despite being an EU law, it applies to all, regardless of their location.
  • It doesn’t just apply to traditional businesses. The principles are concerned with what you do with other people’s data, not who you are or why you do it;
  • There are hefty fines for non-compliance. These can go up to €20 million ($24m) or 4% of global revenue, whichever is higher.

What are the common denominators?

The CCPA is about increasing transparency for California residents. It allows them to discover and change how their data is collected and transacted. Meanwhile, the GDPR is a binding regulation. It monitors data privacy across the E.U., replacing dozens of national privacy laws with a single framework. However, GDPR does have implications for businesses in the US, despite originating in Europe.

Side by side, here’s how they compare:

Both regulations arose to protect people in a world of increasing global interconnectivity. This is in a world where international transfers of personal data are more frequent and elaborate. Regrettably, advances in technology have resulted in data misuse scandals & sophisticated cyber attacks.

CCPA and GDPR apply to individual organizations in different ways. While there are some nuances in scope that distinguish both sets of legislation, they share similar goals.

How do the laws define personal information?

Personal information (CCPA) vs. personal data (GDPR)

CCPA deals with the collection and sale of personal information. GDPR on the other hand addresses personal data processing.

The CCPA defines personal information as any information that identifies, describes, relates to, or can be linked with a consumer or household. This includes PII as previously discussed.

Under the GDPR, personal data refers to any information that directly or indirectly identifies someone. While this doesn’t include household identifiers, any identifying personal data that is not anonymized falls under the GDPR. The CCPA, however, exempts specific categories of medical and personal information from its scope.

Contributions of CCPA & GDPR:

The two regulations overlap when it comes to some rights — so if you’re already compliant with GDPR, you’re well on your way to meeting CCPA requirements.

Here’s what the CCPA and GDPR have in common:

  • The right to know: Under the CCPA, businesses must disclose to consumers (upon request) the information that is collected, used, disclosed, and sold. Organizations under the GDPR must notify individuals at the time of collection and inform them of the purpose. They must also inform how long they’ll retain this data, and who it will be shared with.
  • The right to access: Individuals are entitled to access their personal data. They can request copies of their personal information verbally or in writing. Businesses have a month to respond to requests under the GDPR and — most of the time — can’t charge fees to deal with them.
  • The right to portability: Individuals protected by the CCPA and GDPR have the right to request their personal information. This can be inaccessible, machine-readable formats such as CSV, XML, and JSON.
  • The right to erasure: Consumers have the right to request the deletion of any personal information. This can be to an organization has collected or stored under a variety of circumstances.

 

DEPA — How Laws Like GDPR and CCPA laid the groundwork?

The PDP Bill introduces the construct of consent managers. They are data fiduciaries registered with the DPA. They provide interoperable platforms that aggregate consent from a data principal. This is similar in many ways to the GDPR Data Controllers. As mentioned above, personal data identification is also similarly reflected by the CCPA. The assigning of key stakeholders is also the same here.

Data principals may provide their consent to these consent managers. The consent is for the purpose of sharing their information with various data fiduciaries. They may even withdraw their consent through these consent managers. This is a unique construct. This concept has been introduced to support the Data Empowerment and Protection Architecture (DEPA) for financial and telecom data. This currently powers the Account Aggregators licensed by the RBI.

DEPA — Building From The Data Privacy Blueprint

 

NITI Aayog has presented a draft policy highlighting DEPA. DEPA stands for Data Empowerement and Protection Architecture. It allows individuals to “seamlessly and securely access their data. This can be shared with third-party institutions.

The report looks into assisting organizations with sharing the personal data of an individual with one another. This can be done through the concept of “consent managers”. They will manage people’s consent for data sharing.

The policy constitutes this new data governance model in light of ‘individual empowerment’. This is done by enabling the seamless exchange of personal data among institutions. The process is secure and minimizes privacy harms.

This draft policy follows the myriad of other data-related policies in India. These include the Non-Personal Data Governance Framework and the National Digital Health Mission. NITI Aayog has stated that the policy will be publicly launched and operationalized in 2020 itself.

Features:

  • DEPA will authorize individuals with control over their personal data. This will be done by implementing a regulatory, institutional, and technology design for secure data sharing.
  • DEPA is designed as an evolvable and agile framework for good data governance.
  • DEPA empowers people to seamlessly and securely access their data. It can be shared with third-party institutions.
  • The consent given under DEPA will be free, informed, specific, clear, and revocable.
  • Consent Managers: DEPA will involve the introduction of new stakeholders — User Consent Managers. They will ensure that individuals can provide consent for all data shared. These Consent Managers will also work to protect data rights.
  • Account Aggregators: Reserve Bank of India (RBI) had earlier issued a Master Directive for creating Consent Managers in the financial sector. They are to be known as Account Aggregators (AAs). A non-profit collective or grouping of these stakeholders form the DigiSahamati Foundation.
  • Open APIs: These enable the seamless and encrypted flow of data between data providers and data users through a consent manager.
  • Implementation: RBI, SEBI, IRDAI, PFRDA, and the Ministry of Finance are set to adopt and execute this model. This regulatory foundation will eventually evolve with the onset of new legislation (eg. with the forthcoming Data Protection Authority envisaged under Personal Data Protection Bill, 2019).

Background:

The regulatory direction on data privacy, protection, consent, and the new financial institutions required for DEPA’s application in the financial sector was provided through the following sequence of events:

  • Supreme Court Judgement on the Fundamental Right to Privacy in 2017.
  • Personal Data Protection Bill (PDP), 2019.
  • Justice Srikrishna Committee Report, 2018.
  • RBI Master Direction on NBFC-Account Aggregators, 2016 (for the financial sector).

Impact On Financial sector:

  • Individuals and Micro, Small and Medium Enterprises (MSMEs) can use their digital footprints with DEPA. They can also access not affordable loans. Other amenities include insurance, savings, and better financial management products.
  • The framework is expected to become functional for the financial sector starting fall 2020.
  • It will help in greater financial inclusion and economic growth.
  • Flow-based lending: DEPA can provide portability and control of data. This could allow an MSME owner to digitally share proof of the business’ regular tax (GST) payments or receivables invoices easily. On the other hand, a bank could design and offer working capital loans. This can be based on the demonstrated ability to repay. (This is known as flow-based lending). This is suitable for offering bank loans backed by assets or collateral.

Conclusion

This is the beginning of a new uniquely Indian journey on data empowerment and financial inclusion. An open and vibrant data democracy can be created. But this is only if we can enable a billion individuals to thrive in an increasingly digital economy.

The digital economy should comprise digital public goods. These should be designed to scale to meet the needs of a diverse population. Moreover, the technology standards constituting DEPA are open and publicly available. This also means that the technical and institutional architecture can also be applied to other countries. An institutional body could even be designed to help globalize this standard. This will help apply it to other nations facing similar challenges as appropriate.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Reach us at: www.signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

 

Fighting Financial Crime With UBO — The Final FinCen CDD Rule

Posted on | by Signzian

In 2016, FinCEN introduced a new Customer Due Diligence (CDD) rule. It consisted of specific rules on Beneficial Owners. The rule required financial institutions to comply by May 11, 2018. The Final Rule indicates new FinCEN rules with the applicability date of May 11, 2018. But before we understand the importance of the FinCEN CDD rule, let’s have a look at what these terms mean and how they impact due diligence.

What is FinCen?

The Financial Crimes Enforcement Network (FinCEN) is a government body of the United States. It maintains a network whose objective is to prevent and punish criminals and criminal networks. These are associated with money laundering and other financial crimes. FinCEN is overseen by the U.S. Department of the Treasury. It operates domestically and internationally, and has three major players —

law-enforcement agencies, the regulatory community, and the financial-services community.

  • FinCEN monitors suspicious people and activity by implicating mandatory disclosures for financial institutions.
  • The FinCEN is assigned its duties from Congress. Further, the director of the bureau is appointed by the U.S.Treasury Secretary.

What is Customer Due Diligence (CDD)?

Customer Due Diligence (CDD) is the process of determining your customers’ background. This is done in order to determine their identity and the level of risk they possess.

The application of CDD is necessary when companies with AML processes enter a business relationship. This can be with a customer/potential customer. It may be needed to assess their risk profile and verify their identity.

The above risks mainly highlight money laundering and terrorist financing. Companies may need to ‘know their customers’ for a variety of reasons:

  • to adhere to the requirements of subsequent legislation and regulation
  • to be reasonably certain that the customers are who they say they are.
  • to provide them with the products or services requested, which requires knowledge of who the customer is.
  • to guard against fraud, including impersonation and identity theft.
  • to help the organization to identify unusual events and to enable the unusual to be examined;
  • Unusual events must have a commercial or relevant rationale. Else it may involve money laundering, fraud, or handling criminal or terrorist property
  • to enable the organization to provide any required help to law enforcement.
  • information on customers being investigated subsequent to a suspicion report to the FIU.

Why The Fincen CDD Rule?

The idea behind this new rule to fortify CDD requirements. The rule establishes explicit requirements for CDD. Further, it imposes a new requirement for the FIs. This requires identifying and verifying Beneficial Owners of legal entity customers (businesses).

The CDD Rule applies to Banks, Brokers or dealers in securities, Mutual funds etc

Customer Due Diligence Best Practices

There are 4 crucial elements for due diligence as per FinCEN:

(1) Customer identification and verification,

(2) beneficial ownership identification and verification,

(3) understanding the nature and purpose of customer relationships. This can help to develop a customer risk profile,

(4) continuous monitoring for reporting malicious transactions. On a risk-basis, this can be used for maintaining and updating customer information.

 

The new rules are not retroactive. In other words, it’s not necessary to acquire beneficial ownership information on every existing client. FinCEN felt that this would be too cumbersome for the institutions.

However, it’s not just an account opening where this information is mandatory. During monitoring the account, the risk profile may change drastically. In that case, the customer information — including beneficial ownership — should be updated. For example, new transaction types or amounts may reflect the change. This can be in terms of account or new ownership. They then fall under the coverage of the new final rule.

6 Major Highlights of the Fincen CDD Rule

 

  1. Calibrating Beneficial Ownership Threshold

FinCEN has restated that the specified threshold (25%) is the base, not the apex. It is at the discretion of covered (FIs) to implement stricter thresholds. FinCEN further states that any incremental risk factors may be mitigated by other reasonable means. This includes enhanced monitoring, collection of additional non-mandatory information and recording information relating to expected account activity.

2. Highlighting Identification and Verification Procedures

Although the CDD Rule’s verification procedures are required to contain similar elements, they may not be identical. For example, a financial institution choosing to accept photocopies of identification documents. This would not meet the standard under the Customer Identification Program (CIP) rules. This derogation is expressly authorized within the CDD rule. Financial institutions should determine the documentation standards. This must pertain to the outcome of the required risk-based analysis. It will lead towards the identification and verification (ID&V) of beneficial owners.

3. Determining beneficial owners of new legal entity customer accounts

Where the individual identified as the beneficial owner must be:

(i) a pre-existing customer of the particular FI, and

(ii) is covered under the FI’s CIP,

A financial institution may recycle the information previously collected. This can be done provided the existing information is up-to-date & accurate. Further, the legal entity customer’s representative must certify or confirm the accuracy of this (verbally or in writing).

4. FinCEN Certification Template

As seen earlier, financial institutions are not mandated to use the template certification. They may use alternative formats such as the institutions’ own forms or similar means. These must comply with the substantive requirements. In the given instance, covered FIs should retain the form and refrain from filing it with FinCEN.

5. Document retention periods for ID&V records

Covered FIs must compulsorily retain all beneficial ownership information collected about a legal entity customer. Identifying information must be held for at least five years after the legal entity’s account is closed. Ex: the Certification Form or its equivalent.

6. Certification of a beneficial owner of multiple accounts

An institution may already have obtained a Certification Form (or its equivalent) for the beneficial owner(s). In such case, the FI may rely on that information to satisfy the beneficial ownership requirement for subsequent accounts. This is provided the customer certifies or confirms (verbally or in writing) that:

(i) such information is updated accurately at the time each subsequent account is opened, and

(ii) the FI is not aware of facts that would question the reliability of such information.

New Additions — FinCEN Issues New Guidance for Complying with the CDD Rule

On August 3, 2020, FinCEN introduced additional frequently-asked-questions (FAQs) r4egarding CDD requirements. These were for covered financial institutions detailed in FinCEN’s “CDD Rule”. The 2020 FAQs follow earlier FAQs from FinCEN in July 2016 and April 2018. They provide additional detail on implementing due diligence, building customer risk ratings, and updating customer data.

2020 FAQs — Question 1

Question 1 is in response to the question of whether covered FIs are required to collect information. This is with respect to expected activity on all customers at account opening, or on an ongoing or periodic basis. FinCen highlights that the CDD Rule does not require acquiring of any particular customer information. The only information necessary is to develop a customer risk profile. Others include to conduct monitoring and verify beneficial ownership (for legal entity customers). Likewise, FinCEN states that there is no categorical to conduct media screening on all customers. However, an FI can determine on a risk basis whether such information is needed. This is in order to adequately understand a particular customer relationship. It also helps to identify potentially suspicious activity.

2020 FAQs — Question 2

In Question 2, FinCEN elaborates that the CDD Rule does not require financial institutions to use a specific method. This refers to the method to establish customer risk profiles. It can also automatically categorize as “high risk” products or customer types. These can be identified in government publications as posing specific potential risks. Covered financial institutions are required to comprehend the financial crime risks of their particular customers. They should utilize risk profiles that are “sufficiently detailed. These can be used to distinguish between significant variations in the risks of its customers.

2020 FAQs — Question 3

In Question 3, FinCEN talks about how the CDD Rule does not require financial institutions to update customer information on a continuous or periodic schedule. However, they may decide to do so on a risk basis. Rather, financial institutions must update customer information when they become aware. This can be the result of normal monitoring. It can also be a change in customer information that is relevant to the risk posed by the customer. In such cases, financial institutions also may need to reassess the customer’s overall risk profile. This guidance is consistent with FinCEN’s previous statements in the preamble to the final CDD Rule as well as in the 2018 FAQs.

Practical Considerations

The 2020 FAQs do not break any major new ground with respect to the CDD Rule. It is helpful for financial institutions seeking to set risk-based limits. It helps determine when specific types of information are needed to determine customer risk. FIs should review their CDD policies and procedures. This is with respect to developing and updating customer risk profiles against the new FAQs. Doing so will help identify any areas that may need to be updated or adjusted.

On the other hand, the guidance emphasizes FinCEN’s preference against customer risk profiling that uses broad categories to assign customer risk. It is in favor of a methodology that is more individually-tailored. It focuses on a solution suitable to the characteristics of particular customers and the products and services they use. This is somewhat in contrast with FinCEN’s statement in the preamble of the Rule. It states that risk profiles in certain cases can be based on “categories of customers” or “risk categories”. The 2020 FAQs appear to allow such an approach at least where a financial institution concludes that a customer’s risk profile is low.

No matter the case, these FAQs may provide a valuable reference point for financial institutions. They explain — for example, to regulators — the risk-based decisions that have gone into their AML programs. They also shed light on why not all accounts with certain characteristics are similarly treated.

The European example

The European Union (EU) appears to be far ahead in terms of implementing the rules. They display clarity in the beneficial ownership structure of legal entities. The problem with UBO identification was on the regulatory agenda. This was as early as 2005, with the introduction of the 3rd European Directive on AML. This critical case of European AML Regulation promoted the risk-based approach. It was as a key strategy for tackling money laundering and terrorist financing. It also required obliged entities to identify the individuals controlling legal entities. This would ensure that they cannot be used for hiding asset ownership.

Guidelines for enhanced transparency on legal entities’ ownership were brought about by the 4th (2015) and 5th (2018) money laundering directives to:

 

  • Constitute National UBO registers,
  • Ensure reliable UBO information,
  • Provide public access to UBO registers.

In the UK, there exists the People with Significant Control (PSC) register. It consists of information about the owners who own or control companies. Currently, however, only a few countries have collected beneficial ownership data. This is due to the numerous challenges inherent in such an initiative. The UK parliament also decided earlier this year to accept an amendment to the sanctions. There was mention of an anti-money laundering bill that requires the UK’s overseas territories (the British Virgin Islands, Cayman Islands etc.). It would mandate to publish public registers of company ownership by the end of 2020. This reflects the will to extend the beneficial ownership disclosure to tax heavens across the Atlantic. This is sure to improve the governance of tax avoidance and corruption. It might also influence the Americas to follow a similar path.

FinCEN has initiated the journey towards the implementation of sound UBO identification requirements. EU regulations might set the path for the United States to catch up. It will be interesting to observe whether the United States follows the same path and if so, at what pace.

Conclusion

Perhaps the biggest challenge now is to meet the CDD Rule’s compliance requirements efficiently. Identifying UBOs can be a tedious and time-consuming task. it often results in individuals physically constructing the ownership tree on paper. This is highly inefficient and open to regulatory questioning.

With the new regulations hopefully, UBO will be collected digitally in the years to come. There are already many significant developments in this direction. Multiple countries are now placing measures to adopt UBO collection as part of the standard AML process.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Reach us at: www.signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

 

The CKYC: India’s Integrated Identification System, Improved

Posted on | by Signzian

We are living in a world packed full of automated solutions to problems. When you want to go shopping, just visit an online marketplace like Amazon or eBay and you’re good to go. You have chosen something that you wish to purchase but you wondered, “how should I pay for this?” Perhaps, with Indian KYC, it might be something more lenient to investing like buying stocks or shares from a company.

Good thing that online payment solutions exist nowadays. This is the most frequently used and reliable means of settling important or urgent payments to various goods and services in the market. However, there is a catch — companies are implementing stringent regulations with regards to the people who purchase their selling point and the authenticity of their identity.

One of the first solutions to this problem is the KYC (short for Know Your Customer) systems in several companies, stores, investment solutions, and more. This system is dedicated to identifying, accounting, and securing the customer’s information, including but not limited to the name of the customer, gender orientation, date of birth, employment, civil status, place of birth, and many more. The KYC system is implemented in several parts of the world, especially to developing and developed countries such as the United States, Canada, United Kingdom, Spain, and selected countries in Asia.

Particularly, India has taken a lot of crucial considerations in the field of customer and client identification, including their significant efforts in implementing the Indian KYC system nationwide. Because of the reported scams, complaints, and shady transactions and online accounts used in several platforms, they have decided to take the system to the next level. Here, I introduce to you, the Central KYC system in India.

The motivation behind Indian KYC

The main motivation behind the induction of CKYC in India is the non-compliance of the old KYC of banks all over the country. The Reserve Bank of India (RBI) imposed hefty penalties to several banks such as ICICI Bank Limited, Allahabad Bank, Andhra Bank, Indian Overseas Bank, and Bank of Maharashtra ranging from Rs 1 to 58.9 crore (notation for 10 million). In nearly a year, these banks faced what it looks like their worst penalties in the entire course of their operations.

These banks are known for being well-managed in terms of financial and statement compliance to the RBI. Because of these shocking events, the RBI knew that they have to implement a greater, more stringent system to minimize these unforeseen events. They created the Indian KYC or CKYC system, which is short for Central Know Your Customer. This new system is first imposed by the directives of the Ministry of Finance who created the Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI), the performing body of the CKYC Records Registry. This registry is dedicated to receiving, storing, securing, and retrieving KYC records digitally for clients. This is the government initiative to centralize the overall KYC processes and records in the country.

CKYC as an all-in-one customer records’ haven

For starters, the Central Know Your Customer (CKYC) system is the Government of India’s main KYC (Know Your Customer) program. The goal of this program is to integrate a system in place that enables investors to complete their KYC only once before engaging with specific financial sector entities. The system’s goal is to reduce the cost of generating and checking KYC documents once the consumer first communicates with a financial institution.

The Central Registry of Securitization Asset Reconstruction and Security Interest, or CERSAI, is created for the sole purpose of securing the stability of the new CKYC system in the country. It is authorized by the Government of India to act as the all-in-one security interest registry with the compliance to the PLMA (Prevention of Money Laundering Act) of 2005. They shall be responsible for the overall security of KYC records in a digital form for clients. The accessibility of their form for complying CKYC requirements will be available via several websites on the Internet such as in portal.amfilindia.com. CKYCR shall serve as a consolidated repository of KYC records of financial sector investors with consistent KYC specifications and the inter-usability of KYC records across the industry.

Knowing the differences between KYC, eKYC, and CKYC

In terms of functionality, KYC, eKYC, and CKYC are just the same. They just differ in their approach and how they implement security and accessibility of KYC records for the clients. Their main differences are as follows.

The Indian KYC system is the typical and commonly-done procedure in the Mutual Fund industry whereby an investor’s identity is checked based on the written information he or she submits in a form of a document, accompanied by an In-Person Verification or IPV procedure. When the authentication is completed, the appropriate investor data must be encoded into the KRA Registration Agency (KRA) program and then finally added to their database.

The Indian KYC is done with the use of the investor’s Aadhaar number. There are two verification options of the investor’s identity upon the succession of the eKYC application. The first method is via an OTP (One-time Password) which has a limitation of Rs 50,000 per annum of mutual funds and automatically mandates it online. The second method is via biometrics which has no investment cap unless the investor violates the Government of India’s PLMA of 2005. When done, the investor’s details are imported into KRA databases.

The CKYC is the Government of India’s program seeking to create an integrated system that enables investors to do their KYC only once. CKYC enforcement will allow an investor to go through the whole process without having to complete several KYC formalities. CKYC is geared towards the encouragement of investors in engaging more in the market.

Each investor shall receive a 14-digit KYC Identification Number upon compliance with the following requirements:

Completed CKYC application form/KRA application form plus supplementary CKYC form

· A self-attested proof of your identity (one of the following: PAN, passport, voter’s ID, driving license, Aadhar card, etc.)

· A self-attested proof of your residence (applicable to your proof of identity as long as it states your address)

· A photograph of yourself

Successful applicants shall receive an SMS message or e-mail, including their KIN. However, if you already have a KIN before, you are already a CKYC compliant and you don’t have to go through the whole process of completing the requirements.

Wrapping up: Indian KYC is a promising initiative

The CKYC is a promising initiative of the Government of India to lessen the hassle of going through every step of securing an investor’s identity. Also, it improves the overall security, stability, accessibility, and processing of applicants and existing investors alike. Additionally, the system has helped reduce and even eliminate the recurring number of penalties in large-scale financial establishments in the country, testifying the significant efforts of financial and customer care of the Government.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Rahul Raj

Sales professional with 12+ years of experience in technology sales, and business consulting.

 

Financial Institutions Should Heed Digital Merchant On-boarding

Posted on | by Signzian

Acquirers are always struggling with the cumbersome merchant onboarding process. The need is of an enhanced digital merchant onboarding experience. A platform that is agile. A platform that supports a 100% automated onboarding.

One that incorporates checks for fraud and Anti Money Laundering (AML), digital Know-Your-Customer (KYC), and risk decisioning. Digitizing the process is the solution for faster onboarding and better compliance.

3 Key Problems with the Traditional Merchant Onboarding Process

  • The traditional merchant onboarding process is frustrating and siloed. This means that each linear step is isolated in its functioning. An inordinate delay of about a week could come up to complete the application process. There is no status monitoring process which could track applications end-to-end. In the short term this could choke operational excellence. In the long run threaten business growth.
  • Existing data entry systems used for traditional onboarding are manually-driven and painfully slow. The process is susceptible to human error and can result in squandering of days of time. It could cause rampant inaccuracies in the entered data. The situation is extremely precarious because data inconsistency could prove to be detrimental to user privacy and the reputation of the business. Trust cannot be built in a system prone to error.
  • Merchant onboarding journeys are tedious, long and inconvenient. They stretch across numerous drawn out touchpoints and channels. This leads to excessive service delays lasting up to days or weeks, and poor customer experience. In case of an error the to and fro communication causes further delays.

These key problems thwart any chance of a seamless process. They peak their heads in the following 3 friction points, which slow down and complicate the merchant onboarding journey. This section explains what they are and how the digital onboarding process can solve these issues:

Friction point 1: Manual Form Filling

Data from physical paper applications has to be manually put into the computer database. This requires considerable effort from many physical operators. Significantly reduces errors by eliminating as much manual data handling as possible. This is a common source of error and denied applications. An AI based OCR (optical character recognition) performs extraction at the front-end. It is optimal to reduce time and error. With this, it is now possible to fetch customer information by extracting it from their IDs. The field filling process is also automated. This reduces the mistakes which were made by individuals filling the application. The cumbersome need for manual form filling is eradicated.

Friction point 2: Time-consuming Document Verification

Significant diligence checks and third-party verification is needed to ensure merchants aren’t involved in fraud. The solution must validate the authenticity of documents as part of the onboarding process. When this is done manually it takes huge amounts of time. It is also prone to human error. If additional details are required like court history, there emerges another layer of research. With digitization it is just a matter of ticking the box for another method of verification. Details are then pulled automatically from the Ministry of Corporate Affairs (MCA) database and tallied.

Friction point 3: Risk Assessment/ Underwriting

Information collected in the application paired with a rules-based engine is what decides if an account is approved or declined. The rules-based verification engine determines whether or not a merchant is a pass/fail. According to the required verification needs, data can be retrieved on the merchant very fast. An interactive scorecard or report needs to be made. Organizations generally have access to required data. The question is how do they automate the process and stitch it all together. Risk assessment done manually is arbitrary. But, an automated process has set parameters.

Major Advantages of this Solution

Smoothening over these 3 friction areas results in a host of benefits. They can be boiled down to the following three advantages:

Taking down Time

With automated onboarding abandonment is largely avoided due to the simple process. It cuts through red tape and desk delays. Even in the case of insufficient information, the merchant can be contacted and details clarified without leaving the house. Apart from that, merchant onboarding solutions like Signzy empower a business to create easy real-time processes without sacrificing the risk strategy. A customizable fully automated onboarding process that meets all compliance and KYC regulations can be created with Signzy tools. Whether it’s a straight through process or more complex processes to verify high-risk merchants decisions can be made in real-time. For a merchant, the need to spend hours in filling applications is eradicated. For banks, the verification of documents is expedited with some automation.

Curbing Cost

Digitization with an onboarding solution successfully streamlines the merchant onboarding process to the point where the merchant doesn’t have to even speak to anyone to set up. With manual data entry not required and the time taken to process the applications at the backops drastically reduced, the operational expenses of onboarding come down.

Lighter Labour

A major pain point for the industry is manual work like data entry. The work is often done multiple times. Manual work slows down the process. It can also introduce points of failure in the system. It adds a significant cost to the process. This should not be translated as eliminating people from the process. But, people should concentrate human effort on identifying fraud. Data entry is easily automated. Automation also enables smoother integration between the steps. If data is digital from the start, then the entire process has the potential for automation, especially in the case of smaller merchants. New risk assessment automation, as well as integration and optimization tools, are on the market, so dramatic improvements are already possible.

This story was originally published here

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

 

1 2 3 4