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When it comes to knowing your customer (KYC) in order to prevent financial crimes, it’s insufficient to think solely in terms of the letter of the law. 

The fifth pillar of AML/BSA compliance makes it clear that the USA Patriot Act’s Customer Identification Program (CIP) requirement is a foundation above which there’s room to do much better.  

The fifth pillar mandate calls for financial institutions (FI) to take a risk-based approach and effectively develop customer risk profiles as the baseline by which they understand the nature and purpose of each customer relationship. This is where an “intelligent” KYC (know your customer) check makes a difference. Traditionally, KYC entailed a credit bureau check with poor identity match rate, unnecessary manual review, and inconsistent coverage of underbanked and thin-file consumers. Socure recognizes that precision accuracy in initial KYC is not only valuable for initial results but has downstream benefits as the cornerstone of understanding the customer. We use richer data and sophisticated logic to resolve identities at scale and beyond the mainstream.

Our KYC differentiators are:

  • Diversity in data – We leverage more data and more varied data. Our data source holds over 3 billion records, providing our customers with the highest coverage in the US market.
  • Automated analytics – We apply proprietary advanced match techniques and a neural network approach to unearth the single best-matched identity for the consumer entered data. These match criteria can be adjusted to align with a business’ unique risk profile and tolerance. 
  • User empowerment – We provide reason codes that support our results. They are easily consumed and actionable, and customers can use them to develop their own operational insights. 

Looking beyond the KYC/CIP check, Socure provides a full identity platform. By pairing KYC with identity fraud risk scores, we can resolve minimal pieces of identity data points into a reliable, holistic picture of who is really interacting with your business. Our CIP compliance solution, combined with Socure’s market-leading identity fraud scores, enables an automated 90% customer acceptance rate, a 95% fraud capture rate, a 10% reduction in false positives, and over 50% reduction in manual reviews. This faster and smarter approach is critical in addressing the various types, formats, and quality of input data that financial institutions often confront. From stolen information to name derivatives, misspellings, and phonetic variations, there are billions of misleading “identities” that require resolution.

The risk-based mandate calls for the adoption of prevention tools that are adaptable and keep apace with the sophistication and complexity of financial crimes. The current pandemic - and recent attack trends - are the perfect example. We are seeing rapid and significant changes with regards to money mule operations (more people are unemployed and susceptible to recruitment) and insider acts (also due to personal financial pressures). Traditional CIP/KYC tools need to be manually adjusted each time there is a new normal like the COVID-19 pandemic— they are not a dynamic, adjustable solution fit for modern times.

The sum of these enhancements pushes Socure well beyond check-box compliance. Every business has a different customer base and risk profile, so next-gen KYC checks must be able to empower them with insights to react to those risks. Conventional KYC checks were cumbersome, inaccurate, and ultimately failed businesses and consumers in the digital age, allowing terrorist financing schemes to slip through while hindering genuine consumers from readily accessing financial services.  They were rules-driven processes that resulted in false positives, operational overhead, and regulatory enforcement.

From the perspective of financial institutions, there are immediate and long-term benefits to an intelligent KYC approach:

  • Laser-sharp accuracy in identity resolution
  • Groundbreaking heights in new customer acquisition
  • Return on investment by way of reduced manual review 
  • Risk-centric insights designed to empower users
  • Clean integration into a holistic identity and new account enrollment process to be used alongside fraud and document verification solutions

From the perspective of regulators who look across the industry, the results have encouraged a shift in acceptance of the wider use of AI-based automation in AML. Regulators will no longer ask why are you using machine learning for AML, but instead will ask why are you not using machine learning solutions tailored to your risks? They want to see compliance staff freed from repetitive tasks and administrative burdens and be enabled by smart tools to conduct analyses and pay attention to the risks that abound. The intent of AML/CFT is not to hold businesses to a narrowly defined obligation such as a CIP, but to propel them towards a genuine understanding of their customers. This is where intelligent tools step up to satisfy the larger intent of preventing financial crimes.

Topics: KYC, aml/bsa compliance, know your customer

Annie C. Bai

Annie C. Bai

Privacy, data security, and fintech lawyer and compliance officer. Annie is a graduate of NYU School of Law and former law clerk to the Hon. A.W.Thompson in the District of Connecticut. Her experiences range from the non-profit to Fortune 500 sectors. She advises Socure on privacy, cyber, AI innovation, data/model governance, fair banking, and AML/BSA compliance. IAPP notables include CIPP/US, CIPP/C, CIPT, FIP, and Education Advisory Board.