Risk-Based Approach to Non-Face-to-Face Clients

It is a general judgment that non-face-to-face transactions are riskier than face-to-face transactions due to the fact that the customer's face cannot be verified in these transactions. For this, some institutions may require branch visits to verify the identity of the customer.


The number of non-face-to-face customers has increased considerably during the pandemic period, which has increased the importance of knowing the necessary precautions for non-face-to-face customers.


What Does a Non-Face-To-Face Customer Mean?

Non-face-to-face transactions are defined as transactions that do not require a customer to be physically present at the place where the transaction will take place. As an example of these transactions, we can give internet banking, which we have heard frequently recently. With the development of technology, the number of these customers is increasing.


Maintaining personal customer contact services can be quite costly, and face-to-face transactions are becoming increasingly popular in the financial services industry due to the ability to transact remotely facilitated by technological advances.


However, there is a situation where non-face-to-face transactions are considered to be riskier. That's because most client identification procedures are designed to associate the person in front of the firm's employee with some sort of official identification document, including the client's face.


There are some risks in non-face-to-face transactions; For example, financial institutions never meet the customer.


Risks of Non-Face-To-Face Transactions

Some of the risks that companies that do business in a non-customer way may face include:


  • The customer can access the convenience of making more than one fictitious application without the risk of significant detection by the company. Lack of physical documents, lack of official documents such as identity documents, signed contracts pose a risk.

  • The speed with which electronic transactions are processed can also make it difficult to verify data before a transaction is made. Controls are often delayed and have the effect of recording inappropriate action.


Measures For Non-Face-To-Face Customers

Companies that work with non-face-to-face customers will also need to develop risk-based policies and procedures to enforce adequate controls, which will both facilitate compliance with the AML laws they must comply with and minimize their risks. The nature of such additional procedures required will vary depending on the nature and scope of the transactions. A few important points at this point are as follows:


  • Companies need to identify their customers and take additional steps to seek independent data to validate customer documentation.

  • The nature of additional measures to certify documents that require a confirmatory certificate may also vary depending on the jurisdiction.

  • Companies can work to take into account the nature of customers' payment profiles.


Rısk-Based Approach To Non-Face-To-Face Customers

The extent to which money laundering deterrent measures need to be implemented can be assessed through the application of the risk-based approach. The risk-based approach to be taken should be consistent with companies' assessments of the nature and characteristics of products or services and their money-laundering risk appetite.


Firms need to be able to decide for themselves which transactions represent a higher money laundering or terrorist financing risk and develop appropriate systems and procedures to enable them to do so.


Risk-Based Approach

Risk-Based Approach, Anti-Money Laundering (AML), and compliance are one of the most important components of their operations. Millions of dollars are laundered each year through financial institutions. The source of money laundering is serious crimes such as financing of terrorism, bribery, corruption, drug trafficking, human trafficking, arms smuggling.


An anti-money laundering compliance program for businesses is now mandatory for organizations at risk. As a result, regulators have given organizations some mandatory obligations to effectively combat financial crimes. In addition, the inspections made by the regulators to the organizations have increased in recent years, and heavy fines and administrative fines have been imposed on the organizations that do not fulfill their AML obligations.


Financial Action Task Force (FATF) Report

According to a report published by Financial Action Task Force (FATF), non-face-to-face internet payment methods are divided into three groups.


  • Online banking where credit institutions offer online access to traditional banking services based on an account held at the credit institution on behalf of the customer. Internet banking was outside the scope of the FATF document.

  • Prepaid internet payment products in which non-credit institutions allow customers to send or receive money through a virtual prepaid account accessed over the internet

  • Digital currencies where customers usually buy digital currencies or precious metals that can be exchanged between account holders of the same service or exchanged for real currencies and withdrawn.


This report highlights the importance of monitoring as it states that monitoring systems can be a very effective tool for reducing the risk of financial crime. To be effective, such systems must at least allow the provider to define:


  • Unusual or suspicious transactions;

  • inconsistencies between customer information and IP address;

  • Cases where more than one user uses the same account;

  • Cases where the same user opens more than one account;

  • Where more than one product is financed from the same source.


Where products benefit from Customer Due Diligence exemptions, systems must detect that a customer is approaching a limit (either as a product/transaction or cumulatively) at which full customer due diligence should be applied.


The report acknowledges that value and transaction limits can also be a very strong risk mitigator, as they make a product less attractive to money launderers, particularly when coupled with effective monitoring systems and procedures that prevent multiple purchases of low-value cards or multiple low-value cards. According to the report, the restrictive value limits imposed by most mobile payment service providers are thought to be one of the main reasons why so far, very few money laundering case studies involving mobile payments have been identified.


The report also showed a number of red flags, especially in cross-border operations. You can visit the report to examine these red flags.



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