FSA announces major progress towards streamlining anti-money-laundering customer identification

Philip Robinson, financial crime sector leader at the FSA, said:

"In April I issued a challenge to all stakeholders to join together to defuse the ID issue. This includes customers' apparent lack of support for the process and firms' concerns over cost.

"We believe that it is crucial to the effective fight against all crime, not just financial crime, that key anti-money laundering controls, such as verification of ID, have the support of industry and customers. To that end, the ID working group was established to involve all stakeholders in the ID process.

"Our discussions have shown a common commitment to achieve an ID regime that is effective and that all stakeholders can support. All agree that there are ways to streamline the regime without reducing its effectiveness."

Key propositions in this report are being offered to the JMLSG, who are redrafting their guidance notes and will issue a consultation draft by the end of this year. They include:

1. Increased reliance on a single identification document Discussions in the group indicated that the provision of a second document gives limited additional corroborative value. For example utility bills can be easily forged and a large number of customers do not receive a utility bill in their own name. On this basis, either a passport or a photocard driving licence should meet the need in the case of a majority of customers. Those who cannot provide either document could produce a letter to satisfy ID, for example from a benefits agency or government agency.

2. Recognition of the benefits of electronic verification The group recognised that electronic verification - which involves confirming identity via a credit reference agency - can be used instead of, or in addition to, documentary evidence. The industry is now making increasing use of electronic verification, particularly for UK-based personal customers. Advantages include: it is a straightforward way of accessing multiple corroborative sources, it is particularly useful for non-face-to-face customers because they do not need to provide documents unless the firm considers it is necessary, it can be cheaper than the documentary approach.

3. Greater reliance on ID done by other firms The legal and regulatory obligations to conduct ID checks apply to all firms. There is scope for more extensive reliance in the industry on other firms' ID of a customer.

4. The need for a more tailored approach for non-personal customers and wholesale business ID is also required for non-personal customers such as corporates and trusts. There are concerns that the current ID checks for non-personal customers are disproportionate and insufficiently risk based. The JMLSG is working with a group of principal wholesale and institutional trade associations to develop a revised regime.

Other issues on which progress is being made include:

Customer Understanding Customers should see the identification process as a sensible contribution to the fight against crime and terrorism and not as a burdensome and deliberate barrier to the access to financial services. To promote this understanding, ID needs to be done in a customer-friendly way and firm procedures and staff training should be designed accordingly.

There also needs to be effective communication of the reasons for ID and what it normally involves. Progress has been made by the Treasury, the National Criminal Intelligence Service (NCIS) and the FSA on promoting customer awareness. The industry strongly believes that this activity needs to be reinforced by more visible government support. The government recognises the work done and will continue to work with stakeholders to ensure effective communications.

Tackling the 'fear factor' The group recognises that firms' behaviours could be distorted by their interpretation of the FSA's supervisory approach. To tackle this, the FSA will set out shortly its approach to the use of its supervisory and enforcement tools. The FSA will also revise the guidance and training provided to its supervisors in the light of the revision of the JMLSG guidance notes and the work to refine risk assessment (ARROW) methodology,

Notes for editors

1. The progress report can be accessed here on the FSA website.

2. About the ID working group The ID working group was established following Philip Robinson's speech of 21 April 2004. The members were from a wide range of stakeholders (including Government, law enforcement, industry and consumer organisations). It has met four times since May. The working group was not a decision making body. Its purpose was to build a strong common awareness of the issues and options, and of stakeholders' different perspectives, amongst all the stakeholders.

3. About the JMLSG and their guidance role The JMLSG is made up of a number of UK financial sector trade associations. The JMLSG issue Guidance Notes which aim to promote good practice in countering money laundering and to give practical assistance in interpreting the UK money laundering rules and regulations.

4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

5. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.