Third-Party Identity Verification – Optimum Fraud Prevention and Risk Management Technique

In order to ensure accurate identity verification of the customers and to authenticate the processes involved in doing so, companies often acquire third-party identification processes to review the customer’s information. Complying with the AML and KYC data protection rules, third-party identification safeguards the reputation of the business. It presents pre-built as well as customized data protection and verification solutions, tailored to specific business needs.

The Need for Third-Party Identification:

Companies with extensive operational activities often rely on partners, agents, contractors, and various third-party services. They, in return, prove to be extremely beneficial for the businesses by building it, efficiently managing its frequently fluctuating operational activities, and outsourcing tasks. For all these functions to be performed, they need to be properly assessed and AML compliant. Therefore, they specifically demand the need for the provision of an authentic, strong and effective identity solution provider.

Intending to protect the business from impostors and potentially illegal activities from the third parties, similar to Customer due diligence, effective Third-Party Due Diligence policies and screening processes are implemented that guard the organization against frauds and practice risk management.

Varying Compliance Requirements:

The importance of third party checks can be assessed from their vast implementation in various countries. Depending on the country or industry, the business operates in, the respective regulatory authorities require them to implement the third-party verification solution. Businesses, especially in the financial sector, strictly follow the Anti Money Laundering regulations to save themselves from fraudulent activities and potential risks. Since financial institutions already deal in the transfer of huge sums of money, it paves way for the fraudsters to, quite easily, legitimise their illicit money. Hence, compliance of the Anti Corruption laws are made mandatory by the regulatory authorities, like the US Anti Corruption Law; Foreign Corrupt Practices Act holds a significant position in this regard.

Legitimizing the black money is not really a tough task for the money launderers since the financial institutions, unintentionally, prove extremely useful for them. They unknowingly assist their process of doing so. Payments can come from numerous intermediaries, concealing the true source of funds or doubtful payments are hidden among legitimate ones.

Digital Identity Solutions:

Considering the surge in identity frauds, the identity verification market has formulated various third party identification solutions. The Know Your Customer (KYC) laws are already in practice, serving the same purpose. Hence, the procedures are extended in order to deeply analyse their customers i.e. Know Your Customer’s Customer (KYCC).

Complying strictly with the rules of KYC and applying them to the third parties, KYCC efficiently assists the business’s customer identity process by:

• Screening and authenticating the identity of a Third Party
• Deeply analysing their activities i.e. verifying their source of funds
• Examining the funds to assess money laundering risks associated with the third party.

The third-party due diligence process begins by authenticating the identity of the third party. This is particularly done by gathering accurate business registration information including:

• Business name
• Registration number
• Date of incorporation
• Address
• Status
• Managing directors

Mere acquisition of the information does not really help, therefore, accurate verification is required by comparing the data with official records through a government register or a public file.

Intensive Screening of the Third Party:

After in-depth verification of the third party’s identity, getting to know their business activities helps the company develop an insight into the type of risk they may or may not impose later on. The foremost step is to screen the verified parties against the list of high-risk individuals i.e. the Politically Exposed People (PEP).

Another effective risk management strategy is to look into the sources through which the third party acquired its funds. Information such as the industries they have previously operated in, the countries where their funds come from and the type of transaction, amounts and volumes they deal in. This particular information helps the company assess the risk they might have to deal with in the future.

Risks imposed by mobile solutions- Third Party Checks:

Although the present digitized era has significantly eased the business process and id fraud prevention, it has exposed the business to various risks. Since the covid pandemic, almost all the businesses have been shifted online and the usage of digital technology has increased considerably. Therefore, the need to protect the company against identity fraud through third party checks has become mandatory.

The Third-Party Checks are integral to the id authentication solution, ensuring the protection of the business’s valuable assets as well as compliance maintenance. They allow the business to add another identity proofing layer and validate the details about the individuals. Hence the Third Party Checks act as the global identity verification solution ensuring id validation of the individuals and third parties associated with the company. With that said, a customer’s privacy is still important. Thus, you must employ techniques like federated authentication to make sure that your customers know the data they’re about to share with you.

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