On October 19, 2021, FinCEN, the U.S. Government’s lead Anti-Money Laundering (AML) regulator, granted exceptive relief to casinos that allows them to utilize suitable non-documentary methods to verify the identity of online customers.This groundbreaking change enables gaming organizations to more efficiently onboard players by using digital methods to verify their identity.

Several identification providers have entered the market since this announcement, greatly enhancing gaming organizations’ capabilities around their customer identification requirements by helping them compare information provided by players to the information found in public databases.

Colloquially it has become common practice to synonymously use the terms identification verification (IDV) and Know Your Customer (KYC). However, there is a major difference between KYC and IDV with both serving critical functions within an AML compliance program.  

Identify Verification (IDV)

Modern IDV focuses on onboarding new players. The best IDV providers will have access to information found in large public databases, such as social security numbers, address listings, and more, as well as sophisticated matching engines that can compare your players’ data to public listings in milliseconds to verify a person’s identity. This IDV technology will be integrated into Player Account Management (“PAM”) systems where new player accounts are created.  The IDV provider’s API only needs to verify identify once and then you are good to go.  

The overarching purpose of IDV is to know that “I am who I say I am.” In other words, you have verified that “I’m actually Peter Smith who lives at 555 Nantucket Ln. with an SSN of XX-XX-XXXX.” Once you have verified that, you also know the account is not a fake one.

Basic IDV is the foundation of good due diligence and monitoring. Knowing the correct identity of your players and their basic biographical information enables more effective due diligence and a reduction in false-positive search results.

Know Your Customer (KYC)

KYC is bigger than IDV and is continuous in nature. Knowing your customer means that you know their identity and the risks they bring to your organization on an ongoing basis for the lifetime of the customer. This KYC concept is enshrined in AML regulation, including the Patriot Act (Title 31) and the Bank Secrecy Act (BSA). This concept also extends beyond US law and regulation as most regulators take the common-sense approach of requiring operators to have, at a minimum, a basic understanding of who their customers are and the risks they present to the organization.  

In a perfect world, an organization would truly know each and every customer and be able to fully assess their risk on an ongoing basis. However, the US government is reasonable in its expectation that operators have limited resources and cannot fully assess each and every player in an in-depth manner.  

KYC, therefore, is risk-based, according to US regulation. An organization must understand key indicators of risk across all of their customers in order to identify higher risk customers. Then they must conduct customer due diligence/enhanced due diligence (CDD / EDD) on higher-risk customers to more fully assess the risks they present and to take action when appropriate.  

One way to view KYC is as an overarching concept of the customer identification program (CIP), CDD, and EDD process of knowing your customer. The process begins with CIP, and although gaming organizations may not be officially required to have one in practice, they are required to understand the basic identity of customers in order to adhere to all other required AML and US sanctions regulations. For example, how can you ascertain if a potential customer is on a US sanctions list if you do not know their identity? You must first have accurate biographic information in order to compare them to sanctioned actors.  

Once the CIP is complete, CDD takes place, which allows an organization to further build out a profile to better understand a customer – the risks they present, their expected behavior, and other baseline data to form their profile. Enhanced due diligence is then used sparingly, as it is resource intensive, to take a deeper dive into customers and to truly understand all the publicly available information on them and their activities. This intensive exercise is reserved for higher-risk players where a deeper dive is justified to investigate the relationship between the customer and the organization.  

KYC, therefore, is much more than knowing the players’ identity. KYC entails understanding the legal risk, source of funds, overall net worth, regulatory history, watchlists, transaction behaviors, and other important factors that allow for a comprehensive understanding of who the player is and the risks they present to the organization. In short, KYC is the process of knowing the full picture of the player, which includes CIP, CDD, and EDD. It is ongoing in nature, meaning continuously monitoring negative news, monitoring watchlists, and conducting ongoing CDD or EDD reviews.  

Impact of Modern Software on IDV and KYC

The impact of modern software on IDV and KYC cannot be undervalued. IDV is essential, and robust modern software solutions make this a fluid process as part of your standard workflow right in your PAM or Casino Management System (“CMS”). The veracity of player identification can be assessed in real-time as new players seek to open accounts and IDV providers often take it a step further by conducting watchlist searches to identify prohibited parties like sanctioned actors to help protect gaming organizations from steep fines and legal issues. Some of these providers also offer basic negative news monitoring to help you understand  negative information on players in news media. All of these factors are helpful first steps in the KYC process.  

A true modern KYC software module will be your workhorse. This software will provide player profiles to enable you to organize knowledge and intelligence on players. Building out from the profiles, the software will risk-score all your players to surface higher risk players, monitor players against a comprehensive set of watchlists, negative news, and facilitate the investigative research process (CDD / EDD). A modern KYC system will integrate with premiere data providers and give you the tools and workflows to consume data quickly and build investigative profiles on higher risk players that covers at a minimum their net worth, litigation, regulatory, and political exposure, and other relevant data categories critical to building a risk profile. In short, the system will keep you organized and automate much of your work, enabling you to effectively assess risk comprehensively and efficiently.

Overall, IDV is an essential aspect of KYC, but it is not by definition KYC. KYC encapsulates much more than identity verification and basic watchlist and negative news screenings. Many of the most significant AML regulatory fines and actions, including the current ones involving Entain, Star Entertainment Group, and Crown Resorts, stem from KYC failures that go well beyond what an IDV provider offers. KYC is essential to running a successful gaming operation today and there are modern tools available to support gaming organizations in running KYC programs efficiently and effectively.  

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ABOUT KINECTIFY

Kinectify is an AML risk management technology company serving gaming operators both in the US and Canada. Our modern AML platform seamlessly integrates all of the organization's data into a single view and workflow empowering gaming companies to efficiently manage risk across their enterprise. In addition, Kinectify's advisory services enhance gaming operators' capacity with industry experts who can design and test programs, meet compliance deadlines, and even provide outsource services for the day-to-day administration of compliance programs.

To learn more about Kinectify and book a demo, click here.

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