The impact of the 4AMLD and PSD2 on remote customer KYC identification

John Karantzis, CEO at iSignthis, discusses remote identification and anti-money laundering on digital financial transactions.

John Karantzis, managing director and CEO, iSignthis Ltd

The EU has strengthened transparency rules to tackle terrorism financing, tax avoidance and money laundering throughout Europe.

This has led to the introduction of the Fourth Anti-Money Laundering Directive (4AMLD), together with the Payment Service Directive 2 (PSD2). Each of these regulations requires consumers to identify themselves to regulated sector businesses under a process known as Know Your Customer (KYC).

Digital identity poses an array of challenges for the consumer and the merchant. The requirements for KYC have significantly evolved from the Third AML Directive (3AMLD) to the 4AMLD, especially where remote services are delivered via the internet. As regulated sector businesses adopt online delivery platforms, the challenge to remotely identify customers has become increasingly more complex.

UK-based AML regulated merchants have in recent years relied upon the use of electronic searches of historic databases, including credit files or electoral rolls. European-regulated sector businesses have largely relied upon manual processes, including face-to-face or posted, notarised documents.

A consequence of the growth of the internet is that historic electronic searches of regulated databases are struggling to stay secure, as a result of data breaches, social engineering or even self-disclosure to social media. Manual processes that include posted documents introduce inconvenience, or more likely, a massive level of customer abandonment.

The 4AMLD requires ongoing KYC due diligence together with continuous transaction monitoring, which is a significant change from the 3AMLD.

The PSD2 will require merchants to work with their payment services provider (PSP) to implement strong customer authentication (SCA) for every transaction processed within the EU on a card or wallet.

Given that more than $16.31 billion (£13.39 billion) was lost to card fraud globally last year, businesses and consumers are likely to see the benefits of these new regulations almost immediately.

Most businesses will respond to the 4AMLD and PSD2 requirements with separate solutions. However, some key requirements of both regulations can be treated and solved as overlapping requirements, in turn minimising customer friction, reducing time, costs and the burden on all parties involved in transactions.

iSignthis Ltd (ASX: ISX) meets the challenges associated with the above and provisions remote digital KYC and transaction monitoring for regulated sector businesses to meet the 3AMLD, 4AMLD and/or the PSD2. For more information about our services, please email us at contact@isignthis.com.

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