VideoIdent for All – Draft German AML Video Identification Ordinance

Obliged entities under the German Anti-Money Laundering Act (Geldwäschegesetz - GwG) must identify their contractual partners before establishing business relationships or perform-ing transactions. Due to increasing digitisation, the need for cost-effective and efficient procedures for the remote identification of contractual partners has been growing for years. The video identification or video legitimation procedure (VideoIdent) already plays an important role today, particularly in the financial sector. VideoIdent is a modern option for online personal identification by video. Although there is great demand for remote identification procedures, there is no legal regulation to date. With its circular on video identification procedures (Circular 3/2017 (GW)), the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) defined requirements for the use of video identification procedures for obliged entities under its supervision(players in the financial sector such as banks and insurance companies) already in 2017 (see also: Video identification and liveness checks in the financial sector and: Remote identification - Possible procedures under the German Anti-Money Laundering Act). With the AML Video Identification Ordinance (Geldwäscheivideodentifizierungsverordnung – GwVideoIdentV (draft in German)), the Federal Ministry of Finance has now published a draft ordinance that shall regulate the video identification procedure in the same manner for all obliged entities and thus shall facilitate a reliable implementation of video identification.

AML identification of the contractual partner 

obliged entities are required under AML laws to collect and verify information about their contractual partner or the beneficial owner for the purpose of identification. Alongside banks, financial service providers, e-money institutions and insurance companies from the financial sector, obliged entities also include lawyers and notaries, auditors and tax consultants, real estate agents and organisers and brokers of gambling from the non-financial sector. Identification may be performed by checking the (ID) documents presented on site or by an equivalent procedure. As an equivalent procedure, video identification or video legitimation is of particular importance. Due to the lack of binding requirements for the non-financial sector, there is currently still uncertainty as to whether and under what conditions video identification is permissible as a qualified procedure for identification under AML laws. The AML Video Identification Ordinance aims to tackle this uncertainty by providing a legal framework.

Draft AML Video Identification Regulation

Since the 2017 recast of the German Anti-Money Laundering Act (Geldwäschegesetz – GwG), the German Federal Ministry of Finance has been authorised to issue an ordinance to regulate AML identification procedures. However, up to now, this authorisation has not been exercised. The now published draft ordinance is largely based on the BaFin circular on video identification procedures (Circular 3/2017 (GW)). It retains the principle that identification may only be performed by properly trained staff. Furthermore, similar to the BaFin circular, technical and organisational requirements are set out for the identification procedure and the process flow is defined. In particular, the draft ordinance also stipulates that the procedure has to be conducted in real time and without interruption. Verification by means of video recording is therefore no option under the current draft ordinance.

Possibility of using automated systems

The video identification or video legitimation procedure is considered to be a bridging technol-ogy towards fully automated electronic identification and legitimation procedures. In view of technical progress, the necessity for automated procedures is increasing. This shall reduce costs and enable remote customers, especially those abroad, to be reached more easily. The draft regulation provides for the possibility of using partially and fully automated procedures. The draft ordinance envisages the possibility of using partially and fully automated procedures. In a partially automated procedure, only the recording of images of the ID card and the verification of the ID document and the ID cardholder may be conducted automatically. The record-ing and the result of the verification have to be fully reviewed by an employee to ensure compliance with the requirements before the verification is completed. In a fully automated verification, there is no longer any human control of the procedural steps. Due to the further automation and the lack of control of the critical steps, testing of such procedures is intended under the supervision of the German Federal Office for Information Security (Bundesamt für Sicherheit in der Informationstechnik – BSI). In addition, due to the lack of long-term experience, a fully automated verification may only be conducted in cases where there are no indications of a higher risk of money laundering or terrorist financing.

Availability of electronic ID verification

In practice, the video identification procedure is the predominant procedure for remote identification. However, according to the draft ordinance, the video identification procedure and the partially automated procedure may only be offered if the obliged entity also offers an alternative procedure for verifying an electronic ID (so-called eID) in an equivalent manner for the identification process. In these procedures, only the data required to identify the ID cardholder is transmitted, thereby minimising data protection concerns compared to video identification procedures. The contractual partner shall have the free choice of which procedure to choose. In today’s practice, neobrokers and neobanks in particular often refrain from using the eID alter-native.

Our conclusion

Large parts of the BaFin circular on video identification procedures (Circular 3/2017 (GW)) have been incorporated into the draft ordinance, meaning that the requirements are already largely familiar. With the extension to the non-financial sector, there will be clear and binding requirements for all AML obliged entities regarding the option of using video identification procedures in future. At the same time, the possibilities for using and testing partially and fully automated procedures will be opened up. The envisaged provisions are therefore generally wel-come, in particular the elimination of uncertainties for the non-financial sector when using VideoIdent. Building on the familiar rules of the BaFin circular facilitates the marketability of the relevant procedures.

However, the envisaged additional obligation to provide the option of verifying an electronic ID (eID alternative) can be seen more critically. The German Anti-Money Laundering Act (Geldwäschegesetz - GwG) only prescribes the equivalence of remote identification with conventional on-site verification. Although the requirement of an eID alternative may provide for an increased use of the eID and provide market players with a less complex and more cost-effective alternative. However, this comes at the expense of the freedom of choice of those obliged entities to integrate the identification procedures that best suit their needs into their systems. 

With the kind support of Apostolos Mitsios (research assistant).