Bank Negara seeks feedback on e-KYC for financial institutions

19 December 2019

• licensed bank;
• licensed investment bank;
• licensed Islamic bank;
• licensed life insurer;
• licensed family takaful operator;
• prescribed development financial institution;
• licensed money-changing operator;
• licensed remittance service provider; and
• approved non-bank issuer of designated payment instruments and designated Islamic payment instruments.

1. A requirement for a Financial Institution to obtain its board approval before implementing e-KYC for each type of financial product;

2. The board is to set and ensure the effective implementation of appropriate policies and procedures to address any risks associated with the implementation of e-KYC (including operational, information technology and money laundering and terrorism financing risks);

3. The requirement to adopt an appropriate combination of authentication factors to verify the identity of a customer being on-boarded;

4. Where artificial intelligence, machine learning and other forms of predictive algorithms are used to verify a customer’s identity, a Financial Institution must ensure that the e-KYC solution is capable of accurately distinguishing between genuine and non-genuine cases of customer on-boarding; for this purpose, BNM has proposed a formula to be applied to determine False Acceptance Rates (FAR) and provided considerations and parameters to be observed by a Financial Institution in Appendix 1 of the Proposed Policy Document;

5. Additional procedures are set out in Appendix 2 of the Proposed Policy Document for on-boarding of customers for current account and savings account due to the higher risks that may arise from inaccurate identification of such customers;

6. To monitor the effectiveness and accuracy of e-KYC solutions that use artificial intelligence, machine learning and other forms of predictive algorithms, a Financial Institution that uses such solutions is required to submit half-yearly records to BNM in the template set out in Appendix 3 of the Proposed Policy Document;

7. A licensed person under the Financial Services Act 2013 or the Islamic Financial Services Act 2013 (i.e. a licensed bank, licensed investment bank, licensed insurer, licensed Islamic bank, licensed international Islamic bank, licensed takaful operator, licensed international takaful operator)^[1] and a prescribed development financial institution under the Development Financial Institutions Act 2002 may proceed to implement e-KYC upon submission to BNM of the documents set out in Appendix 4 of the Proposed Policy Document and utilise e-KYC after 14 working days from receipt by the relevant departments of BNM of the complete submission of the information listed in Appendix 4 (“file-and-use” system).

8. A Financial Institution other than a licensed person or a prescribed development financial institution is required to obtain the written approval of BNM before implementing e-KYC.