The digitisation of processes is a core issue for the Swiss financial industry. To create the necessary regulatory framework, in December 2015 FINMA issued a draft circular governing the video and online identification of clients.
Since 1 January 2016 the revised Anti-Money Laundering Ordinance has been in force. Under its terms, FINMA can consider new technologies that provide the same level of security in terms of enforcing the due diligence requirements. FINMA also has to make this practice public. This is why it has drafted a circular on video and online identification.1 The draft describes the due diligence requirements that apply when onboarding clients via the internet. Those affected and other interested parties had until 18 January to comment on the draft. The definitive circular is scheduled to enter into force in March 2016.
Video and online identification
The draft FINMA circular starts out by describing the process used for identifying natural persons by video. FINMA now puts this procedure on a par with in-person identification at the financial intermediary’s place of business. FINMA also describes other forms of online identification which are not put on a par with in-person identification, but which are deemed equivalent to a simple copy of an ID document or a copy of ID confirmed in real time, and which can thus be used in support of identification by mail.
Equivalence with in-person identification
The following points have to be borne in mind if video identification is to be deemed equivalent to in-person identification of a natural person:
The audiovisual communication for video identification must take place in real time (i.e. live). Data must be transferred securely and confidentially. The technology used must also enable the authenticity of the identification documents to be checked. The employees of the financial intermediary who carry out identification must be specially trained, follow a fixed procedure, and use a conversation guide. The company must also make and archive an audio recording of the entire exchange.
The contracting party to be identified must enter their data before video identification takes place.2 The financial intermediary must check these data during the identification call. The ‘behavioural and psychological observations’ recommended for this purpose are likely to leave considerable room for interpretation.
The identification process must be in full compliance with the data privacy rules of Switzerland and the country in which the contracting party is domiciled. Legislation in other countries or the EU3 will pose real challenges for Swiss financial intermediaries. During the video transmission the financial intermediary must take photographs of the contracting party and the identification documents, and check that they match. The intermediary must also use the appropriate technical tools to check that the identification documents are genuine.
- The identification process closes with the financial intermediary issuing the contracting party with a transaction number (TAN) and having it confirmed. The intermediary must abort the identification processif the image and/or sound quality do not permit proper identification of the contracting party
- if the intermediary detects evidence of elevated risk
- or if there is doubt as to whether the contracting party’s identification document or identity is genuine.
The draft circular also governs the way video identification can be carried out for legal entities or business relationships with multiple contracting parties. These processes are also put on a par with in-person identification.
As already mentioned, the draft FINMA circular also describes other forms of online identification. While these other forms are not deemed to be equivalent to in-person identification, they are put on a par with a simple copy of ID or a copy of ID identified in real time, and can thus be used as digital supporting documents for written identification.
Consultation on the draft circular
The consultation ran until 18 January 2016. During this period, interested parties could submit their opinions on the draft. Issues most likely to have appeared in the feedback are technology neutrality, the definition of terms, and the video identification processes.
What’s already clear is that video and online identification will receive a lot of attention in 2016 and give the financial industry plenty to think about. It will certainly also be in the media spotlight the first time it is implemented. Whether video and online identification is financially worthwhile for financial intermediaries depends to a large extent on whether they can make the relevant processes as straightforward and intuitive for their clients as possible.