Author: John Paul

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What is Sanctions Screening – Its Importance for Financial Institutions?

sanctions screening

Sanctions screening is a crucial part of the eKYC process. eKYC is when a business onboard a customer/business digitally. This process is necessary for financial institutions and other businesses looking to onboard customers globally.

Using eKYC, businesses can minimize risks, prevent fraud, and meet compliance. In this blog, we’ll talk about Sanctions screening and its importance for financial institutions.

What Are Sanctions?

Sanctions are restrictions set up by the government and international bodies to achieve policy and security objectives. These measures can target individuals and countries and include travel bans, asset freezes, arms embargoes, or economic restrictions. Sanctions are made by governments to influence behaviors, deter illegal activities, and more.

Common types of sanctions include:

  • Economic sanctions
  • Diplomatic sanctions
  • Military sanctions
  • Sporting sanctions
  • Environmental sanctions

Why is it important?

Sanctions are important for legal and regulatory reasons, to avoid fines, and to sustain reputations. One major reason governments and other entities impose sanctions is to maintain global security.

Sanctions prevent the flow of resources to entities such as terrorists, human traffickers, or groups developing weapons of mass destruction. In some situations, sanctions are an absolute must.

Important in Financial Institutions

Sanctions screening is an essential part of financial institutions while onboarding. Financial institutions are always the first choice for fraudsters for money laundering. Including the sanctions screening in the onboarding process can allow financial institutions to prevent illegal activities, protect their assets, and also make sure that customers don’t engage with sanctioned individuals.

Anti-money laundering (AML) regulations are designed to prevent fraudsters from using the bank’s networks to clean the money obtained by illegal methods.

Consider a bank that doesn’t have a sanctions policy in place, most likely the number of frauds will go up. For customers, they can be taken advantage of without even knowing about it.

How Does Sanction Screening Work?

Sanction screening involves a number of steps:

  • Data Collection – Gathering customer information from every available source
  • Screening – Comparing customer data against sanction lists, watch lists, and PEP lists.
  • Risk Assessment – Evaluating the risk level associated with each customer or transaction.
  • Monitoring – Regularly monitoring customer transactions and behaviors for any sudden changes or suspicious behaviors.
  • Reporting – Reporting any matches or suspicious activities to relevant authorities.

Key Sanctioning Bodies

Several key organizations are responsible for issuing and enforcing sanctions. These include:

  1. United Nations (UN)

The UN imposes sanctions to maintain or restore international peace and security. These sanctions are typically adopted by the Security Council and can include asset freezes, travel bans, and arms embargoes.

  1. European Union External Action Service (EU EEAS)

The EU EEAS manages the EU’s foreign policy and security. It implements sanctions to promote international peace and security, uphold human rights, and combat terrorism.

  1. Office of Foreign Assets Control (OFAC)

OFAC, part of the U.S. Department of the Treasury, administers and enforces economic and trade sanctions. These sanctions are based on U.S. foreign policy and national security goals.

  1. His Majesty’s Treasury (HMT)

HMT oversees the UK’s financial and economic policy. It implements sanctions to meet the UK’s foreign policy and national security objectives.

When Should Financial Institutions Conduct Sanctions Screening?

Financial institutions should conduct screenings at multiple touchpoints during a customer lifecycle:

  • Onboarding – During the initial onboarding process make sure that the customer is not a sanctioned entity.
  • Continuous monitoring – Continuously monitor the customer throughout their lifecycle and look out for any changes in behavior, habits, and any changes in their status.
  • Transaction screening – For specific transactions, especially cross-border transactions, to ensure compliance with sanctions. 

Common Challenges in Sanctions Screening

Sanctions screening is not a flawless solution for you or your company. Various factors can affect its reliability:

  • Data Quality: Inaccurate or incomplete data can result in false positives or negatives.
  • Complex Regulations: Navigating the constantly evolving regulatory landscape is challenging.
  • Resource Intensive: Effective sanctions screening demands significant resources, including advanced technology and skilled personnel.
  • False Positives: A high rate of false positives can lead to operational inefficiencies and increased costs.

For instance, a large bank might encounter hundreds of false positives daily due to common names or incomplete data. Each potential match needs to be investigated by compliance staff, which is both time-consuming and expensive.

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Social Security Number Verification

social security number verification

A Social Security Number (SSN) is a crucial identification method in the United States. Applying for government services, taxation, and employment is almost impossible without verifying an SSN. Businesses need to verify the legitimacy of an SSN before conducting business and onboarding customers. 

In this blog, we will explore everything you need to know about Social Security number verification. Let’s begin.

What is a Social Security Number?

A Social Security Number is a nine-digit number issued to U.S. citizens, permanent residents, and certain temporary residents. 

It is used primarily to track individuals for Social Security purposes, but it has become a de facto national identification number for taxation and other purposes.

Why is SSN Verification Important?

  1. Employment Verification

Employers must verify the SSNs of their employees to ensure they are eligible to work in the United States. This helps prevent the employment of unauthorized workers and ensures compliance with federal laws.

  1. Identity Verification

SSNs are often used to verify an individual’s identity for various services, including opening bank accounts, applying for loans, and renting properties. Accurate verification helps prevent identity theft and fraud.

  1. Accurate Tax Reporting

For tax purposes, both employers and individuals must provide accurate SSNs to ensure proper reporting of income and taxes to the Internal Revenue Service (IRS).

  1. Government Benefits

SSNs are used to determine eligibility for Social Security benefits, Medicare, and other government programs. Verification ensures that benefits are paid to the correct individuals.

Methods of SSN Verification

Several methods and services are available to verify SSNs, catering to different needs and requirements:

  1. Social Security Administration (SSA) Services
  • Social Security Number Verification Service (SSNVS)

This service is available to employers and certain third-party submitters for verifying the names and SSNs of employees against SSA records.

  • Consent-Based SSN Verification (CBSV)

This service allows permitted entities to verify if an SSN matches SSA records, provided the SSN holder’s consent is obtained.

  1. E-Verify

E-Verify is an online system run by the Department of Homeland Security (DHS) in partnership with the SSA. It allows employers to confirm the eligibility of their employees to work in the United States by verifying the information provided on the Form I-9.

  1. Third-Party Verification Services

Various private companies offer SSN verification services, often bundled with other identity verification and background check services. These can be useful for employers, landlords, and financial institutions.

Best Practices for SSN Verification

To ensure the accuracy and security of SSN verification, consider the following best practices:

  1. Use Authorized Services

Always use legitimate, authorized services for SSN verification, such as SSNVS, CBSV, or E-Verify. Avoid using unverified third-party services that may not comply with legal standards.

  1. Obtain Consent

For services requiring the SSN holder’s consent, ensure that you obtain and document explicit permission. This is crucial for compliance and maintaining trust.

  1. Protect Sensitive Information

SSNs are sensitive information and should be handled with the utmost care. Ensure that all data is encrypted during transmission and stored securely.

  1. Regular Audits and Updates

Regularly audit your verification processes and update your practices to comply with the latest regulations and standards. This helps maintain the integrity of your verification system.

  1. Train Employees

Educate employees involved in the verification process about the importance of SSN verification, the proper methods, and the legal implications of mishandling SSNs.

Common Challenges in SSN Verification

  1. Data Entry Errors

Human errors in data entry can lead to verification failures. Implementing double-check systems and automated verification tools can help minimize these errors.

  1. Fraudulent SSNs

Fraudsters may use stolen or fake SSNs. Using comprehensive verification services and additional identity verification methods can help detect and prevent fraud.

  1. Changing Regulations

Keeping up with the ever-changing regulations surrounding SSN verification can be challenging. Regular training and updates to your verification procedures are necessary to stay compliant.

Conclusion

Social Security Number verification is a critical aspect of identity verification and compliance in the United States. By understanding the methods, best practices, and challenges associated with SSN verification, individuals and organizations can protect themselves from fraud, ensure compliance with regulations, and contribute to the integrity of the social security system.

Whether you’re an employer verifying new hires, a landlord screening tenants, or an individual safeguarding your identity, proper SSN verification is essential. Use authorized services, protect sensitive information, and stay informed about the latest regulations to ensure accurate and secure verification processes.

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Common Challenges with Video Chat Identity Verification

Video Chat Identity verification

Video chat identity verification has become an increasingly popular method for online identity verification. Businesses from all over the world use video calls to verify the identities of consumers before onboarding them.

Video chat ID verification is a convenient way to confirm someone’s identity by comparing their face to a government ID. But while it has advantages, this method also faces some significant challenges.

In this guide, I’ll be walking you through all the said challenges of video chat identity verification. 

What is Video Chat ID Verification?

Video chat identity verification as the name suggests is verifying identities via video. Before you can sign up and use a platform, companies may require users to verify their identities on a video chat.

Generally, the process goes something like this. You’re required to get on a chat with an ID verification agent and present your identity documents. Once verified, you’ll be allowed to use the platform unless there are any other steps in the onboarding process. 

Challenges with Video Chat Identity Verification

Here are all the challenges businesses face when it comes to video chat verification. 

  1. Finding a Balance Between Security and Convenience

As mentioned above, verifying identities via video chat is super convenient for businesses that want to verify identities across the globe. 

Unfortunately, this process can sometimes lead to poor customer experience during customer onboarding. Too lax verification processes can be easily spoofed by fraudsters using deepfakes or stolen IDs. Conversely, overly stringent procedures with excessive questioning or document checks can frustrate legitimate users and lead to drop-off during onboarding.

  1. Technological Limitations

Another challenge with the video chat identity verification process is that it comes with a range of technological limitations. While convenient, video chat isn’t sophisticated enough to fight off fraudulent attacks.

Video chats themselves have limitations. Poor lighting, camera quality, and even user posture can affect the accuracy of facial recognition software. Liveness checks, which aim to ensure a real person is behind the camera, can also be bypassed by sophisticated techniques. Ultimately making video chat ID verification a poor method for verifying & onboarding consumers.

  1. Data Privacy Concerns

Verifying identities on video chat also raises concerns about how data is handled. Collecting and storing personal information like government IDs raises data privacy concerns. Businesses need to comply with regulations like GDPR and CCPA dictate how this data is handled. Not only that, companies also need to comply with regulations while maintaining effective verification measures.

  1. Global Consistency

The effectiveness of video chat verification can vary depending on the region. Government-issued IDs differ significantly across countries, and some areas may lack reliable databases to verify the information presented. Just having a customer hold up their identity document on the video chat isn’t enough for onboarding them. 

Moving Forward: Secure and Seamless Verification

Despite these challenges, video chat verification can still be a valuable tool. Here are some ways to improve its effectiveness:

  • Leveraging AI: Advanced facial recognition algorithms with liveness detection can improve accuracy and reduce fraud.
  • Multi-factor Authentication: Combining video chat with document verification and knowledge-based authentication strengthens the process.
  • Prioritizing User Experience: A streamlined and intuitive verification flow with clear instructions creates a positive user experience.
  • Transparency and Compliance: Clear communication regarding data collection and usage builds trust and adheres to data privacy regulations.

Summing Up

Video chat identity verification is super convenient for businesses that are spread globally. However, with the convenience, comes the challenges. By acknowledging the limitations and implementing best practices, video chat verification can evolve into a more secure and user-friendly solution for online identity proofing.

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What is Facial Recognition?

With most of the services going online and you as a user having to prove your identity at every step, identity verification solutions have become a crucial part of the process. The sensitive nature of today’s transactions requires sophisticated identity verification methods.

In this guide, we’ll break down facial recognition, what is it, and how it works. Let’s dive in.

What is Facial Recognition?

Facial recognition technology is a type of biometric security technology that uses facial features to identify and authenticate an individual.

The technology runs on a vision algorithm to analyze and identify unique facial characters. It identifies special facial features, such as arrangements of facial landmarks and features. Facial recognition technology can confirm identity via different mediums, including photos, videos, or real-time scenarios.

How Facial Recognition Works

Facial recognition works by capturing facial features. Facial mapping is done by measuring the total number of nodal points on the face to create unique facial data for each individual.

A biometric verification software uses computer vision algorithms and analyze unique facial characters. Once a face has been captured, it is added to a database that can be used for identifying the facial characters. Whenever a user requests access to a service (as simple as unlocking their devices), the software refers to the data to authorize the access.

The system takes a snapshot of the user and compares facial data against the database to ensure that the details match.

Advantages of Using Facial Recognition Systems

Facial recognition systems are versatile so they can be applied to a number of use cases. Here are all the advantages of facial recognition systems:

  1. Enhanced Safety & Security – Facial recognition systems can provide enhanced safety and security preventing the risk of financial fraud.
  2. Fraud Prevention – FRT helps you fight fraud by verifying identities, particularly in financial transactions and access control scenarios.
  3. Convenience & Efficiency – Facial recognition technology makes identity verification easy and seamless. It’s proven to be more effective compared to biometric technologies like fingerprint, and retinal verification.
  4. Safety & Security in Law Enforcement – Law enforcement agencies use FRT to maintain public safety. Facial recognition technology can help uncover criminal activities, and locate individuals of interest.
  5. Crime Prevention – Not just financial fraud, FRT helps in preventing crime by identifying potential threats and assisting in responding quickly to security incidents.

Disadvantages of Facial Recognition Technology

There are some drawbacks of facial recognition technology that you should know about:

  1. Threats to Privacy –  As FRT captures and stores individual’s facial data, it does raise some concerns about potential misuse of potential information.
  2. Violation of Personal Rights – There are some risks of the technology may infringe on personal freedom and rights.
  3. Data Vulnerabilities – FRT systems can be compromised and facial data can be stolen which leads to identity theft, synthetic identity fraud, and other types of financial fraud.
  4.  Biases & Inaccuracies – The technology may have some biases, including racial and gender biases. These biases can lead to inaccurate results, which leads to false positives or negatives.
  5. Ethical Issues – FRT can contribute to racial discrimination in law enforcement use cases and raise ethical dilemmas related to testing inaccuracies.
  6. Limited Accuracy – The technology isn’t perfect. It’s only 100% accurate, leading to limited reliability in identifying individuals which can produce errors in certain situations. 

Use Cases of Facial Recognition Technology

Many businesses from different industries have requirements that can be met with facial recognition technology.

  1. Fraud Detection: FRT is a method for securing access to any app/service. It allows or denies entry based on verified identity. Facial recognition technology has become a crucial component, it prevents unauthorized access to sensitive information/systems.
  1.  Cyber Security: One of the biggest use cases of FRT is cyber security. The technology can verify user identities to reduce the risk of fraudulent activities. It’s an ideal solution to prevent bad actors from gaining access to sensitive information, databases, and systems.
  1. Banking and Finance: Banks and financial institutions use FRT technology alongside retinal scans and fingerprints to verify the identities of the users. Biometric verification helps in cutting down the risk of fraud and streamlines the KYC process. 
  1. Healthcare: Healthcare facilities also use facial recognition to maintain robust access controls. It allows only authorized personnel to enter restricted areas.

FAQs

  • What are the advantages of using facial recognition technology?

    Facial recognition technology is an easy way to complete identification and authentication. FRT can be applied in several ways, making it a beneficial solution for effectively managing critical aspects of a business, such as access control.

  • Can a photograph fail facial recognition?

    FRT systems are run on powerful algorithms. So if they fail to recognize the difference between a photo and a video, it’s because of the poor algorithm.

  • What is the difference between face detection and face recognition?

    There’s a core difference between face detection and face recognition. Face detection software identifies the presence and location of faces within an image or a video frame. Facial recognition extends beyond recognition, identifying and authenticating people for various purposes.

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How Bitcoin is Used for Money Laundering?

Bitcoin Appeal to Money Launderers

Bitcoin, the world’s first decentralized digital currency, has gained immense popularity since its inception in 2009. Initially hailed as a revolutionary alternative to traditional currencies, Bitcoin’s anonymity and decentralized nature have also made it an attractive tool for illicit activities, including money laundering.

Introduction to Bitcoin

Bitcoin operates on a peer-to-peer network, utilizing blockchain technology to facilitate secure transactions without the need for intermediaries like banks. Its decentralized nature and cryptographic security have led to widespread adoption, with millions of users globally.

Understanding Money Laundering

Money laundering is the process of concealing the origins of illegally obtained money, typically by transferring it through a complex sequence of banking or commercial transactions. The primary goal is to make the funds appear legitimate.

Bitcoin’s Role in Money Laundering

Bitcoin offers a level of anonymity and pseudonymity unmatched by traditional financial systems. Transactions are recorded on a public ledger, but the identities of the parties involved remain largely anonymous. This anonymity makes it challenging for law enforcement agencies to track illicit activities.

Dark Web and Bitcoin

The dark web, a hidden part of the internet accessible only through specialized software, has become synonymous with illegal activities such as drug trafficking, weapons sales, and money laundering. Bitcoin is the preferred currency for transactions on the dark web due to its anonymity and ease of use.

Challenges in Regulating Bitcoin

Unlike traditional currencies, Bitcoin operates outside the control of central banks or governments. This lack of centralized authority poses significant challenges for regulators seeking to combat money laundering and other illicit activities. Additionally, the pseudonymous nature of Bitcoin addresses makes it difficult to trace transactions back to their origin.

Addressing Money Laundering Risks

To mitigate the risks of Bitcoin-related money laundering, various blockchain analysis tools have been developed to trace transactions and identify suspicious activity. 

Additionally, regulatory measures, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, are being implemented by cryptocurrency exchanges and financial institutions.

Real-world Cases of Bitcoin Money Laundering

Several high-profile cases have highlighted the use of Bitcoin for money laundering purposes. For example, the Silk Road, an online marketplace notorious for selling illegal drugs and other contraband, relied heavily on Bitcoin transactions to facilitate its operations.

Impact on Financial Systems

The rise of Bitcoin and other cryptocurrencies has raised concerns among traditional financial institutions and regulators. The decentralized nature of Bitcoin challenges the existing regulatory framework, prompting efforts to integrate blockchain technology into mainstream financial systems.

Future Outlook

As Bitcoin continues to evolve, regulators are working to adapt their strategies to address the unique challenges posed by cryptocurrency-based money laundering. Innovations in blockchain analysis and regulatory frameworks offer hope for combating illicit activities while preserving the benefits of digital currencies.

UNDERSTANDING BITCOIN AND ITS APPEAL TO MONEY LAUNDERERS

Bitcoin is a decentralized digital currency that allows for peer-to-peer transactions without the need for intermediaries such as banks. 

Its features—anonymity, borderless nature, and the difficulty of tracing transactions—make it attractive for money laundering.

Key Features Attracting Money Launderers

1. Anonymity: While Bitcoin transactions are recorded on a public ledger (the blockchain), the identities of the participants are masked behind cryptographic addresses.

2. Ease of Transfer: Bitcoin can be transferred globally without the need for regulatory oversight, making it ideal for moving funds across borders.

3. Liquidity: Bitcoin can be easily converted into fiat currencies through exchanges, providing liquidity to laundered funds.

Step-by-Step Process of Bitcoin Money Laundering

1. Placement: Introducing Illicit Funds into the System

  • Cash-to-Bitcoin Conversions: Criminals purchase Bitcoin using illicit cash through peer-to-peer platforms or Bitcoin ATMs. These methods often require minimal identity verification.
  • Structured Transactions: Breaking down large sums into smaller amounts to avoid detection, then purchasing Bitcoin.

2. Layering: Disguising the Origin of Funds

  • Mixers/Tumblers: These platforms mix a user’s Bitcoin with others, making it difficult to trace the origin. Tumblers take a fee and return “clean” Bitcoin to the user.
  • Chain Hopping: Converting Bitcoin into other cryptocurrencies (e.g., Monero, Zcash) known for enhanced privacy features, then back to Bitcoin or another cryptocurrency.
  • Multiple Wallets: Transferring Bitcoin through a series of wallets to create a complex trail that obfuscates the source.

3. Integration: Reintroducing Laundered Funds into the Economy

  • Conversion to Fiat: Selling Bitcoin on exchanges to convert it back into fiat currency, then depositing it into bank accounts.
  • Investment in Assets: Using laundered Bitcoin to purchase high-value items like real estate, luxury cars, or art, which can later be sold for clean money.
  • Online Gambling: Using Bitcoin to gamble online and then cashing out the winnings, which appear as legitimate earnings.

Tools and Techniques in Bitcoin Money Laundering

  • Mixing Services (Tumblers)

Tumblers break the link between the sender and receiver by pooling bitcoins from multiple users and redistributing them in random amounts.

  • Privacy Coins

Cryptocurrencies like Monero, Zcash, and Dash offer enhanced privacy features that hide transaction details, making them popular in the laundering process.

  • Decentralized Exchanges (DEXs)

These platforms allow for cryptocurrency trading without the need for intermediaries, reducing the likelihood of identity verification and increasing anonymity.

  • Peer-to-Peer (P2P) Platforms

P2P exchanges connect buyers and sellers directly, often with minimal regulatory oversight, making it easier to convert illicit funds into Bitcoin.

Challenges in Combatting Bitcoin Money Laundering

  1. Regulatory Gaps

The decentralized and international nature of cryptocurrencies makes it difficult for regulators to enforce anti-money laundering (AML) laws uniformly.

  1. Technological Sophistication

Criminals continually develop new techniques to stay ahead of law enforcement, such as using advanced encryption and leveraging new blockchain technologies.

  1. Jurisdictional Issues

Different countries have varying levels of regulation and enforcement, allowing criminals to exploit these disparities.

Regulatory and Technological Countermeasures

  1. Know Your Customer (KYC) Policies

Many exchanges now require KYC verification to link identities with transactions, making it harder for criminals to operate anonymously.

  1. Blockchain Analytics

Firms specializing in blockchain forensics track and analyze transaction patterns to identify suspicious activities and link addresses to real-world identities.

  1. International Cooperation

Governments and regulatory bodies are increasingly collaborating to share information and develop unified approaches to tackle cryptocurrency-based money laundering.

Frequently Asked Questions

  1. Q1. How is Bitcoin different from traditional currencies regarding money laundering?

    Bitcoin offers greater anonymity and ease of use compared to traditional currencies, making it more appealing for illicit activities.

  2. Q2. Can Bitcoin transactions be traced?

    While Bitcoin transactions are recorded on a public ledger, the identities of the parties involved remain pseudonymous, making tracing transactions challenging.

  3. Q3. Are there legitimate uses of Bitcoin?

    Yes, Bitcoin has various legitimate uses, including remittances, investments, and as a medium of exchange for goods and services.

  4. Q4. How do regulators monitor Bitcoin transactions?

    Regulators rely on blockchain analysis tools and cooperation from cryptocurrency exchanges to monitor Bitcoin transactions and identify suspicious activity.

  5. Q5. What measures can individuals take to avoid involvement in Bitcoin money laundering?

    Individuals should use reputable cryptocurrency exchanges, comply with KYC/AML regulations, and exercise caution when engaging in Bitcoin transactions to avoid inadvertently supporting money laundering activities.

Conclusion

While Bitcoin offers significant benefits for legitimate transactions, its very nature opens up opportunities for money laundering. Understanding the methods and tools used by criminals can help regulators and law enforcement agencies devise more effective strategies to combat these illicit activities. 

As technology and regulations evolve, the ongoing challenge will be to balance the benefits of cryptocurrency innovation with the need to prevent its misuse for money laundering.

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New EU Anti-Money Laundering Directive

eu aml proposal

To make the European Union AML regulations and Countering the Financing of Terrorism (AML/CFT) stronger, the European Commission introduced a new EU AML proposal on July 20, 2021. The European Union AML directives consist of four legislative proposals. These proposals, more often known as AML Legislative Package, have been published to streamline compliance processes by creating a harmonious and consistent framework of AML/CFT rules throughout the EU. 

These changes in the EU AML proposal will help you tackle the issues related to the detection of suspicious activities and transactions, and it’ll also eliminate the existing loopholes that criminals exploit. As stated in the EU’s Security Union Strategy for 2020-2025, by enhancing the country’s AML/CFT framework, it is possible to provide Europeans with a chance to protect themselves against fraudulent activities.

Four New Legislative Proposals

1. A New EU AML Authority (AMLA)

The European Union came into the global spotlight after its members launched an investigation into Denmark’s largest bank, Danske Bank which supported suspicious transactions worth 200 billion euros through its small Estonian brand for 8 years. In the past, the EU had to rely on national authorities for the implementation of AML policies in such situations.

To fix this challenge, the formation of a new Anti-Money Laundering Authority (AMLA) has been made the focus of the new AML proposal. The main purpose of AML is to address the current weak points of the AML/CFT regulation within the EU. AMLA will act as the central authority that coordinates between national authorities to ensure that anti-money laundering regulations are applied throughout the country.

2. Single EU Rulebook for AML/CFT

The second proposal suggests the transfer of provisions from AMLD5 to a regulation that is applicable to all the EU Member States. This proposal is included in the process to address the European Commission’s concern while the AMLD4 has widespread application and the directive is currently fragmented. 

Having a single rulebook for AML/CFT will help in creating harmony. For example, it will provide elaborate rules on CDD (Customer Due Diligence), Beneficial Ownership verification, and authority tasks of financial supervisors and FIUs. It’ll help existing centralized bank account registers become interconnected and provide access to law enforcement agencies. This will enhance the fraud investigations and recovery of stolen assets, but will also create transparency in the AML frameworks.

3. Expanding Traceability Requirements on Crypto

When it comes to the crypto industry, AML/CFT rules in the EU are only applicable to specific types of service providers. The fragmentation allows criminals to exploit the loopholes to their advantage. The European Union’s report states:

“The lack of such rules leaves holders of crypto assets exposed to money laundering and financing of terrorism risks, as flows of illicit money can be done through transfers of crypto assets.”

The new European Union Anti Money Laundering proposal aims to bring the cryptocurrency sector under the scope of AML regulations. All the service providers are thus mandated to perform due diligence on their customers. Additionally, anonymous cryptocurrency will be prohibited. These suggestions have been added to ensure complete traceability of cryptocurrency transactions, allowing for timely prevention and detection of money laundering. Due to the initial anonymous nature of cryptocurrencies, they quickly became a hub for money laundering.

4. AMLD6 Revokes AMLD4

The last proposal of AML regulation suggested that the 6th Anti-Money Laundering Directive will annul the current AMLD4. This directive will contain new guidelines that will be transported into the national law, such as the AML rules on national supervisors and FIUs in the member states. 

To put it simply, the new Directive will update the relevant provisions of AMLD4, and add some other amendments to it. The AMLD6 also includes the clarifications on the powers and tasks of FIUs and financial supervisors, entities that manage UBO information, the introduction of new tools to streamline risk-based supervision, and cross-border interconnection of bank account registers, and so on. All these amendments are considered vital for European Commission to tackle money laundering and terrorism funding.

Future of AML Regulations

The new EU AML proposal will be discussed by the European Parliament and council. The consultation period is set to end on 7th October 2021. 

Once the directive has been finalized, and the new AML framework has been approved, the AMLA is expected to become functional in 2024.  

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UK Payments Changes after Brexit

impact of brexit on uk payment

For businesses operating globally, UK payments are some of the most challenging types of payments after the implementation of Brexit. While the vote that decided the UK’s departure from Europe took place in 2016, the changes brought forth by Brexit only came into existence in January 2021. Not just customers, but the impact of Brexit is going to be a challenge for international eCommerce businesses that also operate in the UK.

Online shopping was incredibly popular in the UK even before the Covid-19 pandemic. After the pandemic, the online shopping industry has become supercharged, and compared to their European counterparts, UK shoppers spend on average per capita (€3,344 compared to €2,184.24 spent by the average European).

As a matter of fact, the UK is the third-largest global eCommerce market, right behind the USA and China. eCommerce businesses selling to the UK have to make sure that they’re keeping up with the potential impact of Brexit on payments and shipping procedures.

How does Brexit Impact eCommerce Merchants?

If you sell products to the UK from Europe or any other country, you need to know about all the ways Brexit can impact your eCommerce business. Brexit can impact a business’s ability to accept payments from UK customers. 

  • Currency Fluctuations: The volatility in pound sterling exchange could impact the profits you make from your sales. If you charge in your native currency, while the pound is performing low, the UK customers will feel the prices are expensive and they’ll search somewhere else. Another option is to charge customers in Pound sterling, after looking at whether you need to adjust prices to consider the price fluctuations. Generally, charging in native currencies is a great practice for cross-border eCommerce that can improve sales and profit margins while reducing the sale abandonment process.
  • EU Passporting: Financial services businesses operating in the UK will no longer be entitled to provide in the EU without additional authority. The UK leaving the EU makes it a “third country” and thus businesses there lose the “EU Passport”, in turn limiting the international payments between the two countries. 
  • Changes in Local Payments: As the definition of European countries can differ between card schemes and other payment methods, local online payment methods are sure to be affected. Using a payment method that provides you access to local payment methods can help with local currency settlements and cross-border fees acceptance makes the process much better for merchants. 
  • No Freedom of Movement: Now that the UK has removed itself from the EU, there are stricter customs regulations, and goods from global merchants are taking longer to arrive. To mitigate this challenge, if your business has lots of customers from the UK, it’s worth keeping a percentage of it at a local warehouse to reduce shipping time to customers. Using a third-party fulfillment service in the UK for storage to avoid future issues.
  • Volatile Trade Rules: With the relationships between the EU and UK in jeopardy, merchants will stay up to date on new changes and all the situations surrounding them. The UK government website is a good start in terms of staying informed. 

What to Consider While Accepting Payments in the UK?

  • Keeping up-to-date on current situations and regulations around accepting payments from the UK.
  • Make sure that the price you offer to consumers considers potential changes – or do you need to adjust prices for UK consumers?
  • Offer preferred local payment methods to encourage UK consumers to stay loyal.
  • Check new VAT rules for the EU and other countries selling products and services to the UK.
  • If you already sell to both the UK and EU, you’ll now need a UK EORI (Economic Operator Registration and Identification Number) as well as EU EORI.

Brexit and New Payments: Keeping Your Business Ready

The complete impact of Brexit on accepting UK payments may not be clear, but it’s also worth being ready in advance to avoid making crucial mistakes. Many UK consumers will be experiencing a variety of challenges because of the changes, and if you can make their eCommerce experience as smooth as possible, they won’t leave your business for other customers.

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Customer Onboarding Costs: Simple Steps to Reduce Expenses and Enhance the Process

reduce customer onboarding cost

Onboarding new customers have always been a challenge, be it a manual process or digital customer onboarding. Up until a few years ago, customer onboarding included standing in lines, slow manual document verification, and a waiting period ranging up to a few weeks. Fortunately, the pandemic took the standing in lines out of the equation. If not done properly, customer onboarding costs can go through the roof, and still, the customer experience won’t improve.

Signing up new customers should be a simple, fast and seamless process. However, most banks, financial institutions, and other businesses fail to provide a good customer experience. Every additional 5 minutes in a customer onboarding process increases the abandonment rate, thus increasing the customer acquisition costs.

By offering a seamless and positive customer experience, you’re showing your users that they’ve picked a brand that cares. However, creating a seamless, friction-proof customer onboarding process isn’t easy, here are the 5 ways you can avoid the increasing customer onboarding costs:

Steps to Reduce Customer Onboarding Costs

1. Speed up the Process

The primary reason for the increased rate of customer drop-off rate is the speed of the abandonment process. If your process takes days or weeks to confirm if a customer will be approved or rejected then you need to change the process. Most customers won’t wait that long and move towards a competitor that can provide a better experience. 

Businesses need to stay on top of the changes in industry regulations and perform the needed KYC and Due Diligence Checks while customer onboarding. However, relying on human resources to conduct KYC/AML and other checks while providing fast and accurate results are impossible. That’s where the integration of technology comes in.

2. Reduce the Number of False Positives & Negatives

Since industries of all kinds are forced towards digital transformation, fraud detection and prevention have become tougher. Fraudsters can easily create fake documents and identities that can pass as real persons. Too many false negatives mean that fraudsters are easily slipping past your defense mechanism and too many false positives mean that genuine customers are getting flagged as fraudsters and potential risk elements. The inability of reducing the number of false positives and negatives results in business loss.

Organizations need to find the fine line between fraud and friction. They need to pick fraud detection and prevention solutions that can effectively separate legit users and bad actors. According to a report, the eCommerce industry will experience false-positive losses of $443 Billion by the year 2022.

3. Update the ID Verification Methods

Traditional checks still hold some value, but outdated methods like checking credit history often result in good customers abandoning the process of being rejected by businesses. The majority of millennials don’t have CRA data and that’s one of the reasons why they are rejected. In countries where this type of data isn’t available or available with difficulty, an automated process of verification can make a lot of difference. 

By utilizing and analyzing other data sources, businesses can easily enhance their ID verification process while still providing a secure and fast onboarding experience.

4. Automation is Necessary

Technology has penetrated every aspect of our lives, and excluding it from basic business operations will only increase customer onboarding costs. Relying on manual processes is costly, ineffective, onerous, and prone to human error. Customers are unable to track their application status and there are thousands of other things that can go wrong with manual processes. 

Banks that have automated their manual processes have achieved a 32% reduction in lost documents, and have reduced the processing time by almost 60%. Automation also helped banks in reducing their storage, handling, and transportation costs by more than 35%. 

Needless to say, automated customer onboarding is faster, more accurate, and more efficient.

5. Mobile Friendliness For Better Experience

Allowing onboarding through mobile devices makes the process more accurate, and fast. The mobile onboarding process also comes with its own set of challenges, the inability of conquering these barriers can also lead to an increased drop-out rate.

 According to several studies, more than 50% of Millennials will abandon the application process if they are unable to complete it on their smartphones. That’s the reason why mobile-friendly services have a more competitive edge across industries.

How does DIRO Help?

To reduce and avoid the increased customer onboarding costs, banks and financial institutions need the help of a tool that makes their process smooth. 

With DIRO’s online document verification software, onboarding customers is easier than ever. Document verification is instantaneous with DIRO with a stronger proof of verification. DIRO’s online document verification tool can verify over 7000 document types from all over the globe by cross-referencing document data from original web sources. This results in 100% elimination of the use of forged and stolen documents during the onboarding process. By integrating DIRO’s online document verification technology in the customer onboarding workflow, firms can cut down on both time and costs while providing a secure and good customer experience.

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Guide on Types of Cryptocurrency Fraud

Cryptocurrency Fraud

Almost everyone who wants to invest their money has looked towards cryptocurrencies at least once in the last few years. Cryptocurrencies like Bitcoin, Ethereum, Solana, and a few more are taking the investment market by storm. Most people invest in cryptocurrencies with the prospect of becoming rich instantly. This leads them to risk and invest in risky or complete scams instead of actual beneficial currencies. There are several types of cryptocurrency fraud and it’s easy to become prey if you’re not careful. 

Digital currencies or cryptocurrencies aren’t backed by a central entity or any government. And yet, you can use crypto for the sale and purchase of goods and services. You can even exchange it for any conventional currency. Unlike conventional currencies like the dollar or the pound, the value of cryptocurrencies is driven solely by demand and supply. That’s why the crypto market is extremely volatile, and it can bring tons of losses for those looking to get rich quickly.

As the value of crypto has exploded, so has the amount of crypto fraud. The Federal Trade Commission received almost 7,000 complaints of cryptocurrency fraud from October 2020 to March 2021. The accumulated losses in these reported instances of fraud reached up to $80 million. 

To make sure that you can identify and prevent cryptocurrency fraud, we’ve created this guide of common types of crypto fraud. 

Common Types of Cryptocurrency Fraud

While the cryptocurrency in itself is a new scam for most people, the fraud is mostly a rehash of classic scams. Some of the most common crypto fraud are:

1. Fake Websites

Fake website scams aren’t anything new. They’re often full of fake testimonials, technical jargon, fake profiles, and reviews to trick a user. Fake website scams in crypto often promise guaranteed profits or quick earnings. Those who aren’t familiar with how crypto works end up investing and losing their money.

2. Celebrity Endorsement

A new type of scam that has emerged with crypto’s success is celebrity endorsement. Masses of the population will buy crypto if it’s promoted by a huge celebrity. A recent example of this is Elon Musk’s tweet about Dogecoin.

Con artists pose as online billionaires successful businesses or well-known celebrities to trick you into buying the currency. 

3. Pump-and-Dump

Pump and dump is another scam that came into existence with cryptocurrency. Using messaging apps or social media, crypto promoters try to promote a currency with any means necessary. Their aim is to lure investors to buy, drive up the price and then sell the stake, which then causes the value of the currency to drop. Elon Musk and Dogecoin is the primary example of this. While that can’t be categorized as a scam, it’s categorized as influencing.

4. Ponzi Schemes

Fraudsters and con artists try to sell crypto by creating the illusion of big and guaranteed profits by investing in a particular currency. Federal authorities are pursuing criminal and civil cases against one such scam known as BitConnect, which raised more than $2 billion before it was shut down. 

5. Romance Scams

Fraudsters assume the identities of someone else on social media, dating platforms, and other online channels and try to persuade someone from the opposite gender to invest in a particular currency. The FBI’s Internet Crime Complaint Center (IC3) received more than 2,000 reports of crypto-based romance scams in 2021. The total losses from these types of scams reached $133 million in just 7 months of 2021.

6. Fake Wallet, Exchange, or Custodian

Not only individuals, but businesses also deal with several types of crypto fraud. Most of them involve a fake crypto digital wallet, exchange, or a fraudster assuming the identity of a custodian. As of now, there aren’t many solutions that can help businesses be vigilant about this type of crypto fraud.

Warning Signs about Crypto Fraud

There is some basic information that you can keep in mind while dealing with cryptocurrencies. The best way to prevent being a prey of a crypto scam is by looking out for warning signs. Here are some of the most common warning signs of crypto fraud:

  • Some unknown person sends you a text out of the blue regarding crypto investments. If they’re trying to get you to invest in particular crypto.
  • The pitch for a crypto investment claims that there’s no risk involved or promises guaranteed returns.
  • A call, text, email, or social media message claiming to be from a government entity, utility, or any other entity asking to pay bills with cryptocurrencies.

How to Prevent Crypto Fraud?

It’s becoming relatively easy for fraudsters to trick a business with fake or falsified wallet, exchange or custodian information. As a lot of businesses are becoming crypto-friendly, fraudsters are trying to trick them. 

Without the use of proper technologies, businesses can’t distinguish between a real person and a fake one. DIRO can instantly verify crypto account information within 90 seconds with automated user consent and impersonation check-in over 195 counties. 

The output is a machine-readable JSON file that is accepted as a court-admissible document in case of fraud. DIRO’s crypto verification API allows for real-time verification, thus reducing friction for legit customers and preventing fraud during the initial stages. 

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Open Finance and Changing Role of a Bank Manager

role of bank manager in Open Finance

The digital revolution in the banking industry has been put into overdrive since the pandemic, and many sectors are changing customer landscapes. Business banking is no exception. Banks are now facing growing pressure to introduce new processes in line with customers’ heightened expectations.

One finance can transform SMB banking by replacing traditional manual processes. It also allows businesses to support digital onboarding and automated monitoring, and it can reshape the role of a local bank manager.

What Is Open Finance?

Open finance is the next step after open banking APIs and it extends to a wider range of financial data. The primary purpose of open finance is to provide consumers and businesses with better control over their finances which allows users to transform the way they access financial services.

In layman’s terms, open finance leverages consumers’ financial data with their consent, and by using this data, banks can build new products and services such as online accounting, banking, and eCommerce platforms.

Challenges Faced by Bank Managers

For a long time, banks and bank managers have played an integral part in the high street and the wider SMB economy, however, since the last decade, things have been changing throughout the financial institutions. 

In the last 10 years, the biggest banks globally have closed tons of their branches. With growing large portfolios, reducing favor of credit cards, and ineffective and old internal systems, bank managers have been having trouble in recent years. Even before financial services had to battle with the pandemic, onboarding times were slow and customers often faced poor customer experience.

With traditional processes, bank managers are focused on admin work instead of adding value to their customers. Strong customer relationships and their presence in the community are important, winning and keeping business is a vital job when the competition is FinTechs that offer better services to the customers. The challenger bank, Starling, is the success story in the industry, and they’ve had a huge impact on the industry.

In the old times, banks relied on their bank’s managers to build relationships and tackle digital competition. As customers are becoming more tech-savvy, it’s not possible to tackle digital services with the old and traditional services.

How Banks Can Utilize Open Finance to Their Benefit?

Bank managers have 3 core responsibilities:

  • Onboarding
  • Monitoring current customers
  • Being active in new product offerings

Let’s dive deeper into these core responsibilities:

1. Digital Onboarding: So, what does online customer onboarding looks like with open finance? Instead of the usual back and forth of documents for ID and address verification, in just a handful of clicks on SMB simply connects their bank with their accounting, banking, and commerce platforms. Then banks are able to pull all necessary data for customer verification into the internal systems for an instant decision.

2. Automated Monitoring: Instead of banks asking customers for documents to keep monitoring updated, customer data can be leveraged to maintain continuous monitoring.

3. Meaningful Insights: Open finance allows bank managers to have a real-time and ongoing view of customer financial health. Bank managers don’t have to focus on 9-18 months of credit bureau data which boosts relevant and timely outreach. By leveraging open finance, bank managers can have a variety of tools in their arsenal that they can use to serve their customers better.

Adoption of Open Finance for Banks and Consumers

FinTechs are rapidly evolving and adopting financial technologies based on customer demand, the path for larger financial institutions is less clear. Now that Visa has started using open banking provider Tink, it’s just a matter of time that other providers will follow suit. Whatever happens in the industry, for banks to survive and to expand, they need to keep up with the latest technologies.