FSA announces progress towards streamlining anti-money laundering customer identification

Amanda Jarvis

October 15, 2004

The report reflects the discussions of the FSA's ID working group, which has representation from all major stakeholders including law enforcement, consumers and the industry.

Philip Robinson, financial crime sector leader at the FSA, said: “In April I issued a challenge to all stakeholders to join together to defuse the ID issue.  This includes customers' apparent lack of support for the process and firms' concerns over cost.

“We believe that it is crucial to the effective fight against all crime, not just financial crime, that key anti-money laundering controls, such as verification of ID, have the support of industry and customers. To that end, the ID working group was established to involve all stakeholders in the ID process.

“Our discussions have shown a common commitment to achieve an ID regime that is effective and that all stakeholders can support. All agree that there are ways to streamline the regime without reducing its effectiveness.”

Key propositions in this report are being offered to the JMLSG, who are redrafting their guidance notes and will issue a consultation draft by the end of this year. They include:

1. Increased reliance on a single identification document
Discussions in the group indicated that the provision of a second document gives limited additional corroborative value.  For example utility bills can be easily forged and a large number of customers do not receive a utility bill in their own name.  On this basis, either a passport or a photocard driving licence should meet the need in the case of a majority of customers.  Those who cannot provide either document could produce a letter to satisfy ID, for example from a benefits agency or government agency. 

2. Recognition of the benefits of electronic verification
The group recognised that electronic verification – which involves confirming identity via a credit reference agency – can be used instead of, or in addition to, documentary evidence. The industry is now making increasing use of electronic verification, particularly for UK-based personal customers.  Advantages include: it is a straightforward way of accessing multiple corroborative sources, it is particularly useful for non-face-to-face customers because they do not need to provide documents unless the firm considers it is necessary, it can be cheaper than the documentary approach. 

3. Greater reliance on ID done by other firms
The legal and regulatory obligations to conduct ID checks apply to all firms.  There is scope for more extensive reliance in the industry on other firms' ID of a customer. 

4. The need for a more tailored approach for non-personal customers and wholesale business
ID is also required for non-personal customers such as corporates and trusts.  There are concerns that the current ID checks for non-personal customers are disproportionate and insufficiently risk based.  The JMLSG is working with a group of principal wholesale and institutional trade associations to develop a revised regime.

Other issues on which progress is being made include:

Customer understanding
Customers should see the identification process as a sensible contribution to the fight against crime and terrorism and not as a burdensome and deliberate barrier to the access to financial services.  To promote this understanding, ID needs to be done in a customer-friendly way and firm procedures and staff training should be designed accordingly. 

There also needs to be effective communication of the reasons for ID and what it normally involves.  Progress has been made by the Treasury, the National Criminal Intelligence Service (NCIS) and the FSA on promoting customer awareness.  The industry strongly believes that this activity needs to be reinforced by more visible government support.  The government recognises the work done and will continue to work with stakeholders to ensure effective communications.

Tackling the 'fear factor'
The group recognises that firms' behaviours could be distorted by their interpretation of the FSA's supervisory approach. To tackle this, the FSA will set out shortly its approach to the use of its supervisory and enforcement tools.  The FSA will also revise the guidance and training provided to its supervisors in the light of the revision of the JMLSG guidance notes and the work to refine risk assessment (ARROW) methodology.

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