The Swiss Financial Market Supervisory Authority FINMA has amended the due diligence requirements for client onboarding via digital channels, in order to take account of recent technological developments.
Two years following the publication of the Circular on “Video and online identification”, FINMA carried out an evaluation of the regulation's purposefulness and its alignment with the needs of the financial market and financial intermediaries. The evaluation identified the need to update the Circular with technology-neutral and principle-based regulations that are neutral in their application towards technological development and business models.Following a consultation process in which banks, Fintech companies, consulting companies, associations, KYC service providers and self-regulatory organizations (SROs) were involved, FINMA amended certain elements of the circular and simplified others.
For example, FINMA decided not to introduce encryption standards, contrary to corresponding requests. FINMA furthermore adhered to the fact that a simple audio recording is sufficient during a video interview and no video recording is required. In addition, only two security features of identity documents must be checked for both video and online identification instead of three, as FINMA initially proposed. Moreover, a comparison with an identity card database is only necessary if the financial intermediary is not familiar with the identification documents presented, which is usually the case with identity cards presented by foreign countries.
The requirement for the conduct of online identification by "trained employees of the Financial Intermediary" has been dropped, a change which was welcomed. This requirement led to legal uncertainties relating to whether outsourcing parts of due diligence duties to KYC service providers was permissible. FINMA’s decision to drop this formulation has now dispelled doubts as to the admissibility of automation and delegation of due diligence duties to specialised providers of identification services. Furthermore, the greatly criticized requirement of a « selfie with liveness detection » was dropped.
According to FINMA, liveness detection is not a concrete procedure per se. Liveness detection means that the financial intermediary must make sure that the contracting party is present. He can do so by means of suitable technology or other procedure, of which a “selfie with liveness detection” is only one alternative. FINMA therefore leaves it to the financial intermediary to determine what technical means will be used to ensure that the contracting party is present in the identification process.
One of the most welcomed amendments is the fact that a bank transfer exclusively from a Swiss bank is no longer required for online identification. As requested by several parties, a money transfer from an account of a bank in a member state of the Financial Action Task Force (FATF) is now also sufficient, provided that the country of origin was not rated "non-compliant" or "low" within the scope of the FATF country review. The domicile address of the contracting party may now also be verified by means of a tax bill or bills from other state authorities, besides an energy, water or telephone bill (“utility bill”). Lastly, where a qualified electronic signature is being used, the requirements of a bank transfer and residence confirmation can now be waived.
FINMA has defined a transitional period ending on January 1, 2020 to give (already authorized) financial intermediaries sufficient time to adjust their processes. Until then they can choose whether to apply the current requirements or implement the revised version of the circular. For companies newly applying for an authorization as financial intermediary, the new version of the circular, which entered into force on August 1, 2018 will apply.