Implementing innovative customer due diligence: proposal for universal model

• Published in: Journal of money laundering control 2020-12, Vol.23 (4), p.871-884
• Main Authors: Shust, Pavel M, Dostov, Victor
• Format: Article
• Language: English
• Subjects: Banking; Due diligence; Financial inclusion; Financial services; Identification; Money laundering; Regulation of financial institutions; Supervision
• ISSN: 1368-5201; 1758-7808
• DOI: 10.1108/JMLC-01-2020-0007

Purpose The purpose of this paper is to present the identification-verification-confirmation of identity (IVCid) model that can be used to retroactively analyze the existing customer identification programs and devise new ones that can be used in face-to-face or non-face-to-face environment. Design/methodology/approach This paper outlines the main elements of the customer due diligence (CDD) process and identifies those which may present a barrier to the customers. It then outlines the IVCid model. The model is used to analyze existing CDD approaches in physical presence, using reliable databases, biometrics and electronic signatures. Findings The IVCid model suggests that any customer identification program contains three elements: identification (collection of information), verification (checking the veracity of information) and confirmation of identity (linking the information to the individual). The accuracy of this model is confirmed by the analysis of the existing CDD procedures in some countries. Research limitations/implications This paper looks at a limited number of practical cases of CDD implementation. Further research might be needed to assess the strengths and weaknesses of biometric-based or e-signature-based solutions. Research might be needed to establish links between the IVCid model and financial inclusion. Practical implications The IVCid model allows for “modular” approach for the CDD procedures. It also underlines some risks associated with current CDD models. Social implications The IVCid model can be used to devise the CDD procedures that more effectively contribute to financial inclusion. Originality/value This paper proposes the first universal model for the CDD procedures that works for both face-to-face and remote scenarios while also being technology- and business-neutral.