Identity Proofing

The risk-based approach required by global AML/CTF systems relies on financial institutions knowing who their customers are, assessing whether they pose a money laundering or terrorism financing risk, and reporting suspicious behavior to the relevant authorities. In this context, AML/CTF regulations mandate that financial institutions undertake due diligence measures on their customers before establishing business relationships based on the risk profile of customers carrying out transactions above a certain threshold. The foundation of customer due diligence is the identification of a customer and verification of identity. This process of identification and verification is called identity proofing:

• Allows for a potentially legally required identification of customers under AML regulations;

• Verifies that the customer meets certain requirements, e.g.:

  • Customer is not a minor;

  • Customer does not reside in any of the High-Risk Countries;

  • Customer is not a PEP;

  • Customers are not subject to relevant sanctions.

The obligation for financial services to conduct identity proofing can be found in AML/CTF frameworks throughout the world, and derives from the FATF Recommendation 10:

Financial institutions should be required to undertake customer due diligence (CDD) measures when: (i) establishing business relations; (ii) carrying out occasional transactions: (i) above the applicable designated threshold (USD/EUR 15,000); (...) The CDD measures to be taken are as follows: (a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information.