Are customer identification and verification requirements proportionate?

Regulators want to:

  1. Ensure that mobile money is not abused to facilitate money laundering (ML) or terrorist financing (TF). Mobile money can dramatically expand access to formal financial services, and many services can be accessed remotely. While these characteristics of mobile money offer many benefits with respect to financial inclusion, in the absence of proper controls they could increase the risk of ML and TF by making it quicker, cheaper, and easier to transmit illicit funds. Policymakers and regulators will need to ensure that these risks are effectively mitigated through a combination of proper due diligence, ongoing monitoring, and reporting requirements.
  2. Protect against ML and TF risk without unnecessarily restricting access to basic transaction accounts for unbanked and underserved customers. While policymakers and regulators are concerned about mitigating ML and TF risk, they also recognize that for many mobile money users, the alternative to mobile money is cash. Since mobile money is in most respects less vulnerable to ML/TF than cash, any ML/TF requirements that impede access to mobile money services may have the unintended consequence of increasing ML/TF risk. Well-designed mobile money schemes with proper safeguards such as transaction monitoring systems and transaction and balance limits can help to reduce ML and TF risks without disrupting access to basic financial services.

Mobile money providers need:

  1. Flexibility with respect to customer identification and verification for low-value accounts. As noted above, mobile money schemes convert informal transactions into electronic transactions that can be monitored and traced more easily than cash. In countries where much of the population lacks a national ID or a formal address, rigid customer identification and verification requirements may inadvertently prevent many from accessing formal financial services. Regulators can address this concern by developing regulations that provide guidance to providers on how to take a risk-based approach to customer identification and verification. Risk-based CDD, which is mandated by the Financial Action Task Force, allows regulators to establish stricter identification and verification requirements for higher-risk services and customers and more flexible requirements for lower-risk services, which could include mobile money services with transaction and balance limits and automated transaction monitoring systems.
  2. Clear regulatory guidance on acceptable customer identification and verification measures. In some countries, mobile money providers may be uncertain whether alternate documentation is sufficient to comply with customer identification and verification requirements. As a result, they may adopt a cautious approach and refuse to open even a low-value account for clients whose only proof of identity is a voter’s ID card, social security card, or letter from a village chief. This risk can be mitigated if the regulator provides clear guidance on the types of documents that can be used to verify identity for different account tiers.

How can regulators address these issues?

Too restrictive:

Registration for a mobile money account requires full KYC, which may limit financial inclusion if (1) a significant percentage of the population (particularly the unbanked or underserved) is unable to produce the required documents; (2) compliance with the requirements is so costly that providers lack the commercial incentive to target the unbanked or underserved; (3) the amount of personal information required is disproportionate; and/or (4) delays in account opening impact account usage.

Good Balance:

Implementation of a risk-based CDD approach that is proportionate to the perceived risks of the mobile money service. The provider can develop a tailored CDD approach based on assessment of the risks but remains liable if reasonable actions were not taken to mitigate these risks.

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