Tax ID Rule Changes Open Door for AI-Powered Bank Verification

The digital age demands banks find new ways to ascertain at the point of onboarding that customers, whether enterprise clients or individuals, are who they say they are.

PYMNTS Intelligence reported earlier this year that identity-related issues comprise 42% of all suspicious activity encountered by financial institutions.

Know your customer (KYC) mandates direct banks to verify customers in order to be in sync with the Patriot Act and the Bank Secrecy Act, in a bid to battle money laundering and other illicit activities. Within those verification efforts lie the need to examine and collect data including tax identification numbers (TINs).

New Rules, and New Partners

A recent change in rules governing banks’ data collection efforts tied to TINs helps pave the path toward using third parties rather than information obtained solely from the banks’ would-be customers themselves to satisfy reporting requirements. By extension, the rule changes pave the path toward using platforms and artificial intelligence (AI) more actively to remain in compliance and to ferret out and blunt fraud.

On Friday (June 27), several agencies, including the Treasury Department’s FinCEN, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued an exemption order that allows banks to collect tax identification number (TIN) information from a third party rather than from the financial institution’s customer.

That rule requires written procedures that allow a bank to obtain TIN information prior to opening an account and “are based on the bank’s assessment of the relevant risks.”

The agencies stressed that the exemption is optimal, as banks are not required to use third-party providers.

“The Order is a good step in the process of Bank Secrecy Act (BSA) modernization. It will benefit both consumers and the banking industry by promoting innovation and financial inclusion and providing banks more flexibility to operate in a manner that suits their business model,” OCC acting head Rodney Hood said in a statement.

The agencies said that the new order supports the greater use of online and mobile channels to use online verification services to ensure compliance with KYC rules.

Reliable Digital Alternatives

In the order itself, the agencies stated that “reliable alternatives exist for verification today that did not exist or were not as prevalent twenty years ago” when customer identification processes were codified, adding that “there could be circumstances in which such processes produce an equivalent or more reliable outcome when banks are permitted the flexibility to change their method of TIN collection based on the bank’s assessment of the relevant risks. The combination of the increase in vulnerability of TINs to identity theft and the availability of reliable alternative options for verification lessens the importance of the specific method of TIN collection for identity verification.”

The order added that “while FinCEN and the Agencies are not prescribing specific alternative processes for banks, such processes should take into consideration the purpose of the CIP Rule—to ensure a bank is able to form a reasonable belief that it knows the true identity of each customer—and the bank’s assessment of the relevant risks, including those presented by the various types of accounts maintained by the bank, the various methods of opening accounts provided by the bank, the various types of identifying information available, and the bank’s size, location, product and service offerings, and customer base.”

PYMNTS coverage has detailed the ways and means in which advanced technologies can be leveraged to synthesize that data for confidence in banking relationships (and moving beyond TIN data). As reported here, and in one example, Markaaz has built a two-sided platform that has complied information about 542 million companies around the globe gleaned from 65,000 data sources to help enhance real-time verification. Intellicheck has been exploring a consortium approach to data sharing among banks to fight fraud, as CEO Bryan Lewis told Karen Webster.

Separately, ValidiFI’s verification offerings use alternative data, and its vAccount+ suite includes new capabilities for what it labeled “authoritative bank account verification” that includes access to Early Warning data and deposit performance data contributed by more than 2,500 financial institutions. ValidiFI estimated that it can validate up to 85% of accounts.