Financial Crime World

Title: Revolutionizing Customer Identification: Israel’s Fintech Industry Embraces Online KYC Processes

Background

Israel’s Fintech and financial services sector are transforming the way they identify customers through the adoption of online Know Your Customer (KYC) procedures. Until recently, the absence of a digital identification system in Israel posed challenges for businesses offering online and app-based financial services to abide by European and US KYC standards.

Challenges and Solutions

  • The absence of digital identification in Israel for non-banking financial services made it challenging for businesses that lacked traditional bank branch infrastructure.
  • Recent exemptions for online KYC have been introduced by the Israeli financial regulators.
    • Israel Securities Authority (ISA)
    • Capital Markets, Insurance and Savings Authority (CMIA)
    • Bank of Israel’s Banking Supervision unit

Regulatory Measures for Secure Online Identification

To ensure secure online identification, Israeli regulators require the following mandatory measures:

  1. Digital Ultimate Beneficial Owner (UBO) declaration and signature

    • Declaration of Ultimate Beneficial Owners (UBOs)
    • Verification of UBO signatures

  2. Phone number verification

  3. IP address and identity confirmation

    • Geo-location services for IP address confirmation

  4. Risk assessment

Methods for Online Identification Verification

Israeli entities can choose between the following two types of online identification verification:

A. Visual conferencing technology with penny testing

  • Video conferencing platforms
  • Penny testing to confirm the authenticity of the banknote held by the client

B. Remote identity verification technology

  • Two-factor authentication with SMS or email
  • Biometric verification through facematching and voice recognition technology

Benefits of Online KYC Procedures

  • Streamlined operations
    • Reduced paperwork and manual processes
  • Overhead cost reduction
    • No need for physical infrastructure for KYC processes
  • Catering to the demand for online and mobile financial services
    • Meeting customers’ preferences for digital transactions

Security and Compliance

While online KYC procedures bring advantages, ongoing compliance with stringent security regulations is necessary. Regulators stress the importance of protecting customers’ sensitive information in the digital age.