I have been very lucky during my career: thanks to my insatiable quest for information about money laundering and AML, I have learned so much from so many people. The key, I think, is to listen carefully and to see every question as a gateway to learning something new. This week, for instance, a client asked me about the FCA’s stance on video ID. The debate around how to verify client identity remotely is not a new one, but it has been given a firm and accelerating kick up the backside by the pandemic restrictions under which so many of us are currently living. Video ID is exactly what it sounds like: the client appears remotely on your screen and does whatever needs to be done to prove their identity, rather than coming in to your office to drink your coffee, eat your biscuits and show you their passport. The reason this client was asking was simple: his firm is part of a Swiss group, and in Switzerland the regulator has issued very detailed guidance on when and how to use video ID, so his Swiss colleagues were asking whether that guidance tallied with the guidance in the UK. Interesting question, thought I – and an opportunity to learn about video ID.
And this is what I have learned:
- In Switzerland, video ID is nothing to do with COVID – firms regulated by FINMA have been required to amend their “due diligence requirements for client onboarding via digital channels to take account of technological developments” since 1 January 2020, with the idea first mooted in 2016
- The FINMA guidance is wonderfully detailed, covering what documentation must be received prior to the video ID session, how that session must be set up, who must be there, what quality of connection is required and more
- In the UK, government guidance has been issued on the use of video ID by conveyancers, by those checking DBS applications (to work/volunteer with vulnerable people), and by those making wills
- Guidance on the use of video ID has been released by the Guernsey financial regulator
- No guidance on the use of video ID by the financial sector has been issued by the FCA.
I am always surprised that financial regulators are not more magpie-like – surely if someone else has issued some shiny new guidance on a shiny new topic, it would make sense to pilfer that for your own use. (And by “pilfer”, of course I mean read, inwardly digest, draft, put out for consultation, redraft, and then publish to great fanfare.) And if a topic is obviously of general and immediate interest – this client is not the only one to mention video ID – then surely a short “we’re thinking about it” press release would calm the nerves.
I hate money laundering 
A couple of years ago I was involved (as an expert witness) in a criminal court trial in Jersey. I flew to Jersey to attend court over a period of weeks – but various witnesses of fact were only needed for an hour or two. They happened to be in the UK, in Africa and in the Far East. So they appeared by video link. Obviously the Jersey court were well used to receiving evidence in this way (long before COVID-19). Part of their routine involved confirming that the witness actually was who he / she claimed to be. A bit fiddly & time consuming – but by no means impossible!
Hello David, I am a magistrate here in the UK, and for several years we have had people appearing via video link. Depending on the situation (simple hearing, evidence, trial, etc.) the person will have been identified before they appear (often because they are in custody) or we will ask them to confirm their identity and take the oath. But this is based on honour and truth, rather than inspection of documents. I suspect the financial sector might demand a little more!
Germany too was quite early to the party – BaFin updated their rules in 2017. (At the time it was a nuisance – we had been hoping to do simplified due diligence for very basic low-value accounts, and video interviewing was too complex and expensive.)
(https://www.bafin.de/SharedDocs/Veroeffentlichungen/EN/Rundschreiben/2017/rs_1703_gw_videoident_en.html if anybody’s contemplating a fintech startup in Germany)
Many thanks for the link, Cartebien – the more information readers can consult, the better,
Susan, I’m sure you have seen this, another approach??
JFSC committed to helping Industry with KYC Utility.-The Jersey Financial Services Commission (JFSC) has announced its commitment to supporting the financial services industry with the development of a shared ‘know your customer’ (KYC) utility.
The purpose of a KYC utility would be to provide a shared tool for verifying customers’ identity. This in theory could result in reduced costs when taking on new clients, whilst introducing an enhanced degree of assurance for the JFSC as to the quality of these client processes.
Link: http://www.blglobal.co.uk/BusinessNews.aspx?id=jfsc-committed-to-helping-industry-with-kyc-utility
There’s an interesting power struggle there. Do software suppliers focus on selling to financial services businesses (probably as a component of a trust/banking/wealth product), or go full RegTech and cosy-up to the regulator? The latter approach works particularly well for a local software company in a small jurisdiction. (But then there’s a big step up required to sell your RegTech product to regulators in other jurisdictions where you’re not known.)
And I’m sure I heard of a similar proposal over the water in Guernsey/Alderney… The RealMe initiative in New Zealand has been going for a few years; it has a government-run and -controlled and -secured repository of people’s identities, and the repository then sends out confirmations of identity (but not the underlying documents) to registered commercial users. I haven’t checked if they have adapted to accept remote/video ID in recent months, but of course there’s no need in NZ as they are all but COVID-free.
There is also an opinion by the ESA’s on this topic: Opinion on the use of innovative solutions in the customer due diligence process
https://eba.europa.eu/esas-publish-opinion-on-the-use-of-innovative-solutions-in-the-customer-due-diligence-process
Welcome to the blog, Maud, and thank you for your comment. A very useful link – and part of the more measured, pre-pandemic approach. I’ll add it to my list of sources.
After some time working for them I can say with some authority that sometimes the FCA are a bit slow on the uptake, perhaps born out of a extremely cautious ethos.
Still this seems like something they should be doing something about, so I might ask the question of them if nothing else
Regulators are, as you say, cautious rather than early adopters. But with this being such a live issue, I think something should be considered and issued sooner rather than later – it’s not fair to expected regulated firms to make their own assessments if the regulator thinks it’s too tricky to handle.
They do seem to be lagging the rest of government. I had to use the Home Office’s pandemic procedure to check a job applicant’s right to work in the UK, for example. (“Hold your passport up to the camera. Closer please. Keep it still. A bit closer. Try to keep it still please. OK, I’m sure that’s fine.”)
The sloth like nature of the FCA is one of my chief frustrations of working there. Despite regularly being criticised for not doing things or moving slowly the organisation seems incapable of any form of speed.
Hi Susan –
Video ID is also permitted here on the Island….
This is an extract from the IOM AML / CFT Handbook:
Click to access full-aml-cft-handbook-tracked-november-2019.pdf
3.3.6 A relevant person must consider in the customer risk assessment whether they, or another third party, have met the customer. Meeting a customer is not limited to in person face to face contact. It also includes the use of visual communication mediums over the internet, such as full motion video conferencing. The party meeting the customer must clearly see the customer’s face and their image on a passport (or other acceptable means to verify identity as per section 4.7.1) at the same time to demonstrate that the identity document actually belongs to the customer and the customer is who they claim to be. A non-visual medium such as a telephone call does not qualify as meeting the customer. Essentially the relevant person must be satisfied the customer is who they say they are.
Welcome to the blog, Martin, and thank you for your comment – this is very useful, to know what is happening in other jurisdictions.