Much has changed since 1970 when legislators supporting the Bank Secrecy Act (BSA) emphasized that the new law would not be a burden to financial institutions because they already kept most of the records required. However, almost fifty years after the BSA was published, the burden for financial institutions having to comply with numerous, stringent regulations has nothing but grown exponentially; numbers speak for themselves:

Far from making things easier for banks, each of the 11 additional laws introducing new, ever-stringent anti-money laundering (AML) and know-your-customer (KYC) rules, have added more requirements for banks, payments companies, and money transmitters.

The regulatory burden on today’s financial institutions has never been higher. Since 1999, the banking industry has had to manage the implementation of a new rule or a change to an old rule about every week and a half.

Furthermore, after 9/11, the American government has made each iteration of anti-money laundering (AML) legislation more complex: standards are higher, and penalties for failure to comply are harsher. To this point, and according to the U.S. GAO, the U.S. Government fined banks $5.2 billion in total between 2009 and 2015. Between 2016 and January 2017, more than $15 billion in fines were announced.

Financial Institutions have become the de-facto gatekeepers of verified identities

As a result, banks are now considered the key gatekeepers of customer identification, having to be accountable for the implementation of overarching KYC policies and maintaining compliance with ever-complex AML rules. In plain English: banks and other regulated financial entities are expected to know who is opening an account and the level of risk that each person presents. And this obligation comes at a hefty cost: KYC processes cost the average bank $60m annually, as revealed by a recent research conducted by Consult Hyperion.

In addition to reporting transactions above certain levels, banks are now required to know who their customers are, and to report any 'suspicious activity'. In this sense, PwC’s Financial Services Global Economic Crime Survey identified that 55% of respondents considered that compliance spend would increase in the next 24 months.

This investment / embracement of the new, digital KYC paradigm and more specifically when it comes to adhering to the recommendations of the Financial Action Task Force, which aims to combat money laundering and address threats to the international financial system, 47% of U.S. financial institutions said that they had taken action to address the changes demanded by these new requirements.

Big gains for those FIs leveraging digital identity verification

Meanwhile, banks, money transmitters and other payments companies must proactively combat fraudsters in a way that doesn’t put off legitimate customers. This is, in fact, the source of concern for many professionals in the industry: over two-thirds of financial institutions’ decision-makers surveyed by LexisNexis said to be missing out on business due to customers being flagged erroneously as risky or potentially fraudulent. This is a fair concern taking into account that a 2016 Thomson Reuters global survey found out that banks are taking as long as 48 days to onboard a new customer.

Banks are by far the most invested in innovative ways to verify their customers are who they say they are. According to Accenture, banks are currently spending over US$1 billion a year on identity management solutions.

Those investments are however worthy ones, as Benjamin Franklin put it: "An investment in knowledge pays the best interest." Good proof of it is a leading global payments processor which invested in mobile capture and digital identity verification software solutions to comply with the last European AML directives which require customer authentication once a given monetary threshold is reached. This company is now able to lift 92% of AML restrictions placed on users in minutes using ID verification with Mobile Verify®.

Leveraging digital identity verification is also bearing fruits for an international leading consumer finance firm, which has been able to cut down its customer onboarding-related operational expenses by 26% after replacing ineffective, manual, KYC processes with fully automated ID verification.