After several changes of the guidelines regarding video identification procedures, the German financial supervisory authority ("BaFin") has published new provisions regarding customer identification (KYC) via video transmission in their Circular 3/2017 (GW).
Circular 3/2017 replaces Section III of Circular 1/2014 (GW) and Circular 4/2016 (GW), which had replaced Circular 1/2014 in June 2016. By Circular 4/2016 BaFin had tightened the requirements for identity verification via video transmission: Video identification was supposed to be available for credit institutions only (not for financial institutions, service providers etc.) and the customer always had to perform a reference bank transfer in order to verify his identity. These augmented requirements were criticized throughout the financial industry for lack of practicability. Hence, BaFin suspended Circular 4/2016 only one month after its release so that Circular 1/2014 (GW) became effective again (for further information on this read our RegZone report here). Finally, in April 2017, Circular 3/2017 (GW) was released and will come into force on 15 June 2017 bringing clarity to the back and forth of the various guidelines on this topic.
Like the previous circular, the new one also bases on the interpretation of the term "personal presence" by the German Federal Ministry of Finance. In that sense, "personal presence" is also given in situations in which the identified and the identifying person are in physically separate locations but are still communicating face-to-face through video transmission formats like Skype or Google Hangouts. This means that the general rules of the German Money Laundering Act ("GwG") regarding the identification of persons appearing directly in front of the identifying person (and not the enhanced customer due diligence provisions regarding non-face-to-face customers) apply to video identification procedures.
While video identification is applicable for the identification of individuals, it does not apply to that of legal entities. Nevertheless, it can be used to identify the representatives of legal entities.
The main goal of the new circular is to improve the practicability and to increase the security of video identification processes. For that reason, on the one hand, the circular sets out requirements regarding the exact procedure of video identification. For example, the identifying person has to check at least three test criteria randomly picked from a set of criteria in the circular. The identifying person also has to ensure the authenticity of the identification document in various ways.
On the other hand, the new circular imposes certain conditions regarding the procedure’s setting. Most importantly, the identification procedure has to be carried out by employees or third parties who receive regular training and possess at least a certain amount of knowledge specified by the circular. Moreover, the identifying person has to perform the video identification procedure in a separate locked room in real time with the person to be identified, without any interruptions and using end-to-end encryption. In addition, the quality of the video conversation has to be good enough to enable the identifying person to prove the legitimacy of the identification document and to identify the person beyond doubt. To add additional protection to the procedure against manipulation the person to be identified has to send a transaction number to the identifying person to ensure his or her authenticity. For the same reason the identifying person has to ask critical questions and has to document the identification procedure. He or she has to create screenshots or photographs that prove the identity after the identified person has given his or her consent to the recording. The whole documentation has to be kept for five years.
Circular 3/2017 (GW) will come into force on 15 June 2017 and is supposed to be evaluated again after three years at the latest. At that point, it will be interesting to see if the new guidelines prove to hold their promise of improved practicability and security. At least the fact that the abovementioned reference bank transfer is not any longer required will improve the practicability of the procedure. Further, the financial industry can profit from the fact that video identification continues to be admissible for institutions other than banks (e.g. payment service providers and financial services institutions).
You can read Circular 3/2017 (GW) here (at the moment available in German only).
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