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Steps the public sector should take as anti-money laundering and know your customer laws proliferate

(Image credit: Image Credit: MK photograp55 / Shutterstock)

Fraud is a growing and serious problem in the public sector, predominantly caused by increased interactions in the digital space. 

Fraud and error in public spending are estimated to cost the taxpayer up to £51.8 billion every year - larger than the UK's annual defense budget. Now with the Covid-19 The Policy Exchange estimates that fraud and error during this crisis is set to cost the UK Government an additional £4.6 billion. Though it could be many billions of pounds more, as it’s predicted that significant amounts of money paid out under the government’s Bounce Back Loan Scheme will not be paid back, largely due to fraudulent claims online.

New AML / KYC regulations

It’s not just the public sector that’s experiencing issues with fraud, every industry is. It’s why new laws such as the EU’s Fifth and Sixth Anti-Money Laundering Directives (5AMLD and 6AMLD) have come through in quick succession over the last couple years. 

While the UK has adopted the 5AMLD and not the 6AMLD, it’s important leaders in the public sector have knowledge of all existing and proposed legislation in this area, as the attempts to clampdown on evolving areas of online fraud continue.

When public bodies scramble to be ready for new AML and KYC laws, it’s important that they don’t forget that previous onboarding procedures for those using their services may be insufficient for the incoming regulations. This means the data that they store on citizens could be in breach of the new laws.

Retrospective ID investigation is the answer 

To ensure that historic data on citizens is compliant as new AML and KYC laws and regulations come on stream, retrospective ID investigation is the way forward. There are two ways to deliver this. The first is to actively engage with those already on your database. It’s an approach that not only ensures compliance, but it’s a useful method to gain further insight and updates that can be used for future targeting. In this respect, new laws, such as 5AMLD, provide an opportunity for re-engagement with those registered for your services. However, it’s worth bearing in mind that directly approaching people in this way for retrospective ID investigation purposes can not only be costly, but the additional administrative communication can prove irritating for them. 

Alternatively, those in the public sector can employ existing technology to undertake a ‘live re-onboarding’ automated process that operates behind the scenes. It is possible to deliver this without engagement with the public and ensure compliance with more stringent AML and KYC regulations. This involves using electronic ID verification (eIDV) - a significant tool in the public sector’s fight to combat fraud. Not only can it be used when a person goes through the online application process for a service, by running cross-checks in real time against the data they have provided. It can also be used to undertake large volume retrospective ID processing and avoid the manual input of historical data for checks. It’s worth bearing in mind that manually re-inputting user’s contact data is vulnerable to human error, leading to typos and mistakes appearing in the database, which will cause big problems in the future.

eIDV works by matching someone’s name, address, date of birth, email address or phone number against reputable data streams, like government agency, credit agency, and utility records, in real time. This ensures the people being onboarded have a smooth customer experience, as well as delivering immediate retrospective ID processing. This makes it a go-to best practice tool for both new user onboarding and retrospective ID investigation. However, to function effectively, the eIDV service requires access to billions of global records. It should also have access to politically exposed person (PEP) lists from around the world, in addition to the various global watchlists, adverse media and sanctions checks for AML. Such a process should also enrich customer records by highlighting and correcting any inaccuracies and adding missing data where available.

Document scanning and verification technology to determine authenticity

Additionally, to make ‘live re-onboarding’ work, public bodies need the technology to determine authenticity. This means scanning copies of people’s ID documents, such as driver’s licenses, passports and utility bills. These are items already likely to be held on file and stored for customer due diligence. Then by using the appropriate optical character recognition (OCR) and machine readable zone (MRZ) technology, it’s possible, in real time, to determine whether the ID document is real and valid – eliminating the potential for human error. Furthermore, the photo ID embedded in these scanned documents supports biometric ID verification, such as facial recognition, which helps those in the public sector to securely speed up engagement with customers. 

This automated approach to document verification is so much better than the manual method, which has numerous issues. Staff might not have the required standard of training in identifying forged or fraudulent documents, and could make mistakes. They might have limited knowledge of ID document types, of which there are thousands worldwide, which can cause review-related delays. Also, in the public sector records of ID checks can be held in hard copy at various locations, making the process time-consuming and quality control difficult. 

With some staff still on furlough and public sector budgets under extreme pressure, there is little justification for continuing spending money on manual ID checks when speed and accuracy are effectively offered via automation.

Artificial intelligence (AI) set to play vital role in identity verification 

AI can work well with eIDV, and is set to play an increasingly important role in helping to deliver KYC and AML compliance, both in user onboarding and retrospective ID investigation. One form of AI, semantic technology, associates words with meanings and recognizes the relationship between them. The machine reasoning and automated pattern recognition provided by this technology can help to identify possible fraudulent applications in real time. Also, semantic technology makes it possible to apply context and make inferences with data, ensuring properly validated identities as well as broader data quality and integrity. 

As the number of AML and KYC regulations proliferate, retrospective ID investigation cannot be avoided if compliance is to be achieved. Speed, efficiency and cost are the key reasons public bodies should leverage existing technology such as eIDV, and document scanning and verification, to launch an automated ‘live re-onboarding’ process behind the scenes. It’s also technology that can be successfully used at the onboarding stage to ensure AML and KYC compliance.

Barley Laing, the UK Managing Director, Melissa

Barley Laing is the UK Managing Director at Melissa, which has over 35 years’ experience in delivering global data intelligence, quality and identity verification solutions to organisations of all sizes.