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KYC Best Practices10 Apr 2024

How to Perform Customer Identity Verification in South Africa

Emmanuel Agwu

Technological advancement has experienced rapid growth in the past decade, especially in finance. Today, individuals can easily onboard global financial platforms from the comfort of their homes. However, this technological evolution is not without its challenges. Criminals are constantly finding new ways to beat the system, causing a surge in Identity theft and fraud and a need for robust identity verification solutions. As highlighted in our 2024 Digital Identity Fraud Report in Africa, the last four years have seen a consistent increase in fraud rates across Africa. The average Document and Biometric fraud rate has increased for six consecutive quarters since Q2 2022.

 

The rise of fraud has seen financial institutions across South Africa lose money to digital banking fraud and be fined for noncompliance. This stresses the need for the right technological solutions to help financial institutions and businesses efficiently curtail fraud and achieve AML compliance. Customer identity verification is one of the key processes that help businesses spot potential criminals and fake actors at the onboarding stage before they cause any harm. 

 

Today, businesses are mandated to verify the identity of their customers for fraud prevention and KYC compliance or risk fines. Fortunately, this can be easily automated and achieved with the right solution.  

What are the Key KYC Requirements in South Africa?

 

Financial institutions and businesses in South Africa are mandated to follow the guidelines laid down by the Financial Intelligence Center (FIC) under the FICA Act 2001 and its subsequent revisions. This law lays out processes for customer identity verification to help identify unlawful financial activities and combat money laundering. 

 

Businesses who wish to operate in South Africa are required to comply with the following customer due diligence requirements: 

a. Customer Identification

 

This refers to the process of ascertaining the identity of a customer. It involves collecting Personal Identifiable Information (PII) from the customer. The process generally collects the following information: 

 

  • Full name
  • Residential Address
  • Date of Birth
  • A valid government-issued ID (e.g Passport, Smart ID)

b. Customer Verification

 

Customer verification is the process businesses undergo to authenticate the accuracy of the information provided by the customer. This is to ensure that the information provided is correct and that the customer is really who they claim to be.

 

To achieve this, businesses need to cross-reference the information provided by the customer against trusted sources like government databases. Note that businesses must comply with all data protection laws as laid down by the Protection of Personal Information Act (POPI Act) in the process of achieving this.

 

Typically, businesses are required to verify any of:

 

  • Government-issued ID cards (Passports, Smart ID cards, Drivers’ License, Green Book, and Resident Card)
  • Proof of address

 

Some businesses may also require biometric identification for identity verification, especially with the advent of Smart IDs. 

c. Continous Monitoring

 

The KYC compliance process does not end with onboarding. It is important for businesses to continuously monitor customers for suspicious activities and periodically update their information to evaluate their risk profiles. 

 

Read our comprehensive guide on KYC Requirements in South Africa

What are the Penalties for Non-Compliance with KYC Laws in South Africa?

 

Depending on the severity of the noncompliance, businesses can face several penalties in South Africa, including: 

 

  • Fines of up to R50 million 
  • Imprisonment of up to 15 years
  • Temporal suspension or permanent revocation of license

How to Verify Customer Identity in South Africa

 

AML Compliance requirement varies between businesses based on the industry they operate. Check out our full Guide to KYC and User Onboarding in South Africa to better understand the unique requirements of your business in South Africa.  

 

Businesses can customize Smile ID’s solutions to meet their specific KYC needs by following the processes below:

Step 1: Identity Verification

 

Smile ID offers an array of identity verification solutions to help businesses meet their KYC compliance needs. This includes: 

 

  • Document Verification: empowers businesses to verify 8500+ identity documents across 226 countries globally using biometric authentication and OCR technology.
  • Government KYC Checks: leverage direct access to databases from ID issuing authorities across Africa to verify customer identity. 
  • Enhanced Document Verification: Combine the functionality of Document Verification and Government KYC checks in one robust solution for a more detailed compliance check.

Step 2: AML Check

 

Take extra precautions by running an AML check on the customer against PEP, Sanctions, and watchlists.

 

Businesses can perform this via our no-code platform or API/ SDK integration. Book a free demo today to learn more.

Ready to get started?

We are equipped to help you level up your KYC/AML compliance stack. Our team is ready to understand your needs, answer questions, and set up your account.