The power of open standards in combating financial crime

The stakes of preventing fraud and financial crime are at an all-time high and Corporate Digital Identity (CDI) stands as a pivotal force. During the recent Open Source in Finance Forum in New York City, I had the opportunity to present how CDI is revolutionizing the fight against financial crime. In particular, by bringing a unified, scalable, and reliable approach to corporate identity verification.

Why financial crime persists

Financial crime continues to evolve, with criminals exploiting gaps in identity verification. Current Know Your Customer (KYC) regulations often lack the technological support and open standards required to keep up with sophisticated fraud schemes.

This is where CDI shines, providing a game-changing solution. CDI’s open standards facilitate interoperability between systems, ensuring data can be seamlessly shared and verified. Also facilitating transparency, making it easier to identify potential illicit activities.

Moreover, these standards improve the customer experience by reducing the need for repetitive data submissions and manual verification processes. Banks that adopt open standards for CDI can automate significant parts of the onboarding and verification process. As a result, streamlining operations and cutting costs, while maintaining compliance with KYC and Anti-Money Laundering (AML) regulations.

CDI: The game-changer in KYC and financial crime prevention

CDI standards come with a multitude of benefits for financial institutions, particularly in the onboarding process:

1) Scalability: With open standards, CDI creates a digital profile that can be scaled across multiple platforms, industries, and jurisdictions, creating a build once, use many approach.

2) Automation: The verification process becomes faster, consistent and more accurate. Subsequently allowing banks to onboard clients more efficiently while reducing costs with fewer instances of unnecessary outreach.

3) Continuous monitoring: CDI enables effective ongoing due diligence, ensuring that any changes in corporate structure or ownership are identified in real time, reducing the risk of financial crime.

Addressing gaps in current standards

While the adoption of CDI and open standards is still progressing, these challenges are paving the way for immense opportunities. CDI stands as a powerful enabler, offering financial institutions a pathway to overcome existing gaps and build a secure, efficient system for identity verification. Let’s explore how CDI delivers against these challenges:

1)????? Aligning trust and incentives

CDI provides a secure, verifiable identity process that aligns the interests of all parties with common standards. Financial institutions benefit from trusted, fraud-resistant digital identities, while government authorities gain a streamlined process for issuing and maintaining secure corporate identities. With CDI, the focus shifts from reactive measures to proactive fraud prevention, fostering an ecosystem of trust that encourages collaboration across industries.

2) Creating universal standards and interoperability

CDI also drives progress in establishing universal standards. The global nature of financial crime demands solutions that transcend borders, and CDI offers a scalable, interoperable framework to do just that. By encouraging the development of common protocols and cross-platform API integration, CDI enables financial institutions to comply with KYC and AML regulations globally.

As more jurisdictions adopt open standards, CDI simplifies cross-border processes, reducing the risk of fraud and streamlining compliance processes—allowing banks to seamlessly onboard clients across different regions.

3) Strengthening legal and regulatory frameworks

While the lack of consistent legal frameworks can slow down adoption, CDI is well-positioned to help shape the future of digital identity governance. CDI supports regulatory bodies in developing clear, modern legal frameworks that govern digital identity systems across jurisdictions.

By providing a transparent, secure framework for managing digital identities, CDI addresses issues like data protection, consent management, and third-party access. All the time ensuring compliance with privacy laws while maintaining the integrity of identity verification processes.

4) Tackling procedural and technical gaps

Legacy systems and manual processes have long been a stumbling block in the financial services industry. CDI, however, offers a pathway to modernization. By enabling real-time monitoring, continuous KYC, and automated data verification, CDI minimizes the reliance on outdated systems and processes.

Financial institutions can streamline their KYC and AML workflows, reducing the costs and complexity associated with onboarding and compliance. Additionally providing a single source of truth for corporate identities, allowing stakeholders to access and verify information efficiently.

Moving forward: The future of CDI and open standards

The adoption of open standards will continue to accelerate as financial institutions, regulators, and technology providers collaborate to shape the future of corporate identity verification. With CDI as the foundation, the industry is moving towards a more secure, efficient, and cost-effective system for preventing financial crime, One that not only meets today’s regulatory demands, but also anticipates future challenges.

The future of KYC lies in automation, transparency, and global interoperability, and CDI is the key to making that vision a reality.

For the latest research on Corporate Digital Identity, you can read the 3 part series 'Keeping good company: streamlining client onboarding with CDI' and read my Whitepaper here and here.

Author:

Dr. Henry Balani is Global Head of Industry and Regulatory Affairs at Encompass. He is a noted industry thought leader and commentator on Regulatory Compliance issues and trends affecting the financial services industry. As a published academic, Dr. Balani also lectures on international business, economics, and regulatory compliance courses globally. Dr. Balani holds a Doctorate in Business Administration from the University of Wisconsin, an M.B.A. from Northern Illinois University in the USA, and a B.S. in Economics from the London School of Economics.