The Importance of Identity Verification and Customer Due Diligence in Indonesia’s Financial Sector

In the rapidly evolving financial landscape of Indonesia, the Financial Services Authority (OJK) has been at the forefront of regulatory innovation. Established in 2011, OJK has been proactive in implementing robust Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations to safeguard both consumers and the financial system at large. One of the critical aspects of these regulations is the need for stringent identity verification practices and Customer Due Diligence (CDD) procedures. This article delves into the specifics of these requirements and explores the benefits of automating such procedures. For a comprehensive understanding, explore the OJK’s regulations on the official website.

The OJK introduced its first comprehensive set of KYC regulations in 2014, aimed at combating money laundering and terrorist financing. Over the years, these regulations have been updated to adapt to emerging risks and technological advancements. The most recent update, known as Regulation 6/POJK.07/2022, was enacted to strengthen consumer and public protection in the financial services sector. It includes various provisions such as consumer protection infrastructure, legal defense by OJK, and supervision and guidance by OJK.

Identity Verification Requirements

As per Indonesian regulations, the following ID attributes are required for identifying a natural person from official documents:

Indonesian Idea showing required fields. Call outs include: Full name including Alias
Identity document number
Address
Gender
Marital Status
Date and Place of Birth
Citizenship

Customer Due Diligence (CDD) Methods

Financial institutions may apply one or more of the following measures to perform identity verification:

  1. Document-Based Verification: Utilizing photo-based biometric identification documents.
  2. Real-Time Audio-Video Transmission: A live, interactive video session where the customer shows their identity documents.

Document Authenticity Checks: Specialized services to determine the physical presence of the document (whether it’s in hand, a photocopy, or on a screen), especially when validating data against databases like Duckapil.

On-Premise Delivery and Data Privacy

One of the standout features of products like BlinkID is the capability for on-premise delivery. This ensures that all data processing happens within the confines of the institution’s infrastructure, bolstering data privacy. For the Indonesian market, this is not just a feature but a significant advantage. It ensures that data remains within the country, aligning with the regulatory requirements and further enhancing trust among consumers.

Shows a mobile screen depicting on premise delivery and data privacy

Business Impacts of Following KYC and CDD Requirements in Indonesia’s Financial Sector

Positive Impacts of Compliance

  • Enhanced Reputation: Complying with stringent KYC and CDD regulations boosts the reputation of financial institutions.
  • Risk Mitigation: Proper identity verification and CDD procedures help in mitigating risks related to fraud, money laundering, and other illicit activities.
  • Regulatory Goodwill: Being in full compliance can lead to a more favorable view from regulatory bodies, potentially easing future audits and inspections.
  • Operational Efficiency: Automated systems for KYC and CDD can streamline operations, reducing costs and increasing efficiency.
  • Customer Trust: Transparency in following regulations can lead to increased trust from customers, which is invaluable in the financial sector. Customer satisfaction surveys indicate a direct correlation between trust and compliance.

Negative Impacts of Non-Compliance

  • Financial Penalties: Failure to comply with regulations can result in hefty fines and penalties. The projected cost of AML compliance across several countries in the Asia-Pacific region, including Indonesia, is estimated at a staggering US$6.09 billion annually.
  • Reputational Damage: Non-compliance can lead to a loss of reputation, making it difficult to attract new customers or retain existing ones.
  • Legal Consequences: In extreme cases, non-compliance can lead to legal action, including the revocation of licenses to operate.
  • Operational Disruptions: Regulatory actions for non-compliance can lead to operational disruptions, affecting the overall business.
  • Loss of Competitive Edge: Institutions that fail to comply may find themselves at a competitive disadvantage, as they may be barred from certain business activities or markets.

Benefits of Automating KYC Procedures, Including CDD

  • Efficiency: Automating KYC procedures, including CDD, streamlines the verification process, reducing both time and manpower required for customer onboarding.
  • Accuracy: Automated KYC systems minimize human error, ensuring that all required identity attributes are accurately captured and verified.
  • Compliance: Automation allows for easier updates to meet new regulatory requirements, reducing the risk of non-compliance and associated penalties.

In the context of Indonesia’s stringent KYC regulations, which include components like Customer Due Diligence (CDD), automation is not just a luxury but a necessity. Products like BlinkID, with its module Verify, can play a pivotal role in achieving these automation benefits. With its real-time scanning, verification capabilities, and unmatched document liveness accuracy, BlinkID and Verify enhance efficiency, ensure accuracy, and aid in maintaining compliance, making them invaluable assets for financial institutions operating in Indonesia.

Document Liveness Accuracy

One of the standout features of Verify, a module of BlinkID, is its unparalleled accuracy in document liveness checks. It’s not just a feature but a testament to the product’s reliability. In comparative studies, Verify consistently outperforms competitors, making it the most reliable feature for identity verification.

Politically Exposed Persons (PEPs) and Enhanced Due Diligence (EDD)

Financial institutions are required to determine if a customer is a PEP or holds a public office, requiring Enhanced Due Diligence measures. Automated systems can screen individuals against global watchlists, aiding in this process.

Conclusion

The new regulations introduced by Indonesia’s OJK make it imperative for financial institutions to adopt robust identity verification and CDD procedures as part of their overall KYC compliance. Automating these processes not only ensures compliance but also brings about operational efficiencies. Given the dynamic nature of financial regulations, it’s crucial for institutions to stay abreast of the latest updates. Resources such as OJK’s official website, industry seminars, and compliance training programs can serve as valuable tools for staying updated.

September 28, 2023

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