Know Your Customer (KYC): An Overview

A Mixed Regulatory Picture

While most Middle Eastern countries have tightened their KYC regulations, many European nations have been slow to implement changes. In Saudi Arabia, fingerprints are requested for opening a bank account, and even a prepaid or postpaid mobile phone account is checked against Al Elm, a national database, in real time. The French regulator, by contrast, allows people to buy prepaid debit cards at thousands of convenience stores with only minimal ID checks. Money transfer systems have generally been better at implementing KYC, but there is still more that could be done.

Pre-Paid Cards

Prepaid bank cards, which also facilitate the withdrawal of cash at ATMs, are an alternative to conventional payment cards without the need for a bank account. Stamped prepaid Visa or MasterCard cards, equipped with a secret code, allow purchases in stores or online just like conventional bank cards — but unlike the latter, they are not immediately registered to a particular individual in a formal way, and more credit can be added as and when necessary. Since 2014, prepaid card and bank account packages in France have been available in 25,000 independent tobacco shops, or online, for around €20, with minimal ID checks — so tracing who actually has access to the funds they hold is unreliable.

Anonymity Limits and the EU Action Plan

The cards can also be used to transfer money abroad. While this may be helpful to many, it is also convenient for those involved in fraud, money laundering and criminal activities. EU law permits prepaid cardholders to reload a maximum of €2,500 over one year without undergoing any kind of KYC, and single-use cards can be loaded with up to €250 anonymously. In February 2016 the European Commission published an Action Plan for strengthening the fight against terrorist financing — its key theme being how to better identify the cardholders of prepaid cards.

SIM Cards

Regulations have also been introduced for prepaid mobile SIM cards. In Germany, Spain and Italy it is already a requirement that those purchasing prepaid SIM cards provide ID documentation, and Belgium and Luxembourg agreed to introduce similar measures in 2016. Despite this, there have been concerns that even where KYC is supposed to be strict, the rules are not always strongly enforced and the collected data is not shared with law-enforcement agencies — leading to calls for tighter regulations in this sector.

Money Transfer

Ogloba has developed a platform that greatly facilitates money transfer transactions for both pre-registered and non-registered customers. The software collects the required ID information and communicates with the central application hosted by the largest money transfer companies, such as Western Union and MoneyGram. In Belgium, for example, chipped ID cards issued to residents can simply be inserted into the EFTPOS: the card details are read, confirming the identity of the person making the transfer — fast, convenient money transfer while making it very difficult for payments to be sent anonymously or using fake ID documents.

Conclusion

The cost of implementing new regulations is likely to fall on operators rather than distributors and customers, so they will be looking for cost-effective, secure solutions that remain convenient for their customers. Ogloba already offers industry-leading KYC solutions for SIM card purchases, prepaid cards and money transfer, and continues to develop innovative products and services for partners and clients. With the recommendations unlikely to be ignored, it is time to choose a trusted, experienced and expert KYC solutions provider.

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