The limitations of AI and fully automated solutions for identity verification in the financial services industry

By Vanessa Malone

Artificial Intelligence (AI) and other automated solutions are actively being deployed in the financial services industry to remove friction, increase efficiency, and reduce costs.

Especially in today’s remote environment, financial institutions are being forced to transition services to their digital equivalents while maintaining compliance and keeping clients happy.

At first glance, onboarding and identity verification seem to be ideal processes to automate.

The identity verification process for acquiring a loan, opening a brokerage account, or investing in a company still involves a lot of manual labor to collect, sort, and review all the necessary data. 

Fintech can be incorporated to drastically streamline certain aspects of the process. However, issues arise when trying to completely automate the identity verification process, especially if entrusted to a third-party identification service provider. Among these issues are compliance, accountability, and accuracy.


Financial institutions are required by law to implement robust Know Your Customer (KYC) and Anti-money laundering (AML) compliance plans. To fulfill these requirements, sensitive PII data is collected during the onboarding process. If your firm passes identity verification off to a third-party, you have to consider data protection laws including Regulation S-P. Regulation S-P refers to the data protection standards for registered advisers, broker-dealers, and investment companies to safeguard sensitive client information.

Unfortunately, some third-party solutions outsource identity verification to additional third-party checkers (some of which are based in other countries) to save time and cost. This strategy further distributes your clients’ sensitive data and can put them at risk for fraud, theft, or other financial crime.


Piggybacking off of the issue of distributing your client data outside of your firm to streamline identity verification checks, if something goes wrong, who do you think is responsible for answering for any disciplinary action? 

That’s right, you!

It doesn’t matter how many third-party technology solutions you utilize in your identity verification process. It’s your firm’s clients, your firm’s processes, and your firm that is ultimately responsible for managing and protecting your data. 


Performing accurate identity verification checks is critical to creating a solid and trusted foundation. 

Some completely automated solutions boast accuracy and cross-checking of submitted data, but the technology has not yet been perfected. In fact, we won’t name names, but our compliance team tested an automated solution on the market that incorrectly verified Homer Simpson.

Again, while fintech can be incorporated to streamline the data and greatly reduce review time, it still takes human review to quickly catch and deny these inaccurate submissions.

A hybrid approach

We believe in a hybrid approach when it comes to identity verification. Technology, in our opinion, should be used to enhance, not necessarily replace important processes. 

Horizon offers KYCware for advanced identity verification, KYC/AML compliance and data protection. 

A few differentiators that address the above dilemmas:

  • Sensitive data doesn’t leave the firm’s control at any point in time.
  • Offline records of PII data are secure & in accordance with SEC Rule 17a-4(f)
  • Complete customer identification program “CIP” in accordance with the US Patriot Act Section 326
  • Proprietary anti-gaming features, MRZ scanner and liveness detection
  • KYCware streamlines data collection and displays it in a turn-key user-friendly platform. It typically only takes 1.5 minutes for a compliance team member to verify an investor’s KYC submission and AML screening.

In addition to maintaining compliance, accountability, and accuracy for your firm’s identity verification process, our white-label app maintains an on-brand experience for your customers, streamlines the collection process, and reduces manual review time.

We believe that knowing who your customers are, ensuring their sensitive PII data is protected, and adopting a compliance-centric technology solution will help you incorporate fintech in a way to automate where possible, and enhance where it’s not.

To schedule a demo to see how KYCware can meet your offering needs, please visit or email us at

About Horizon

Horizon offers a suite of integrated securities software applications for compliant issuance through secondary trading of electronic securities. Truly a compliance-first business, our solutions combine Wall Street and Silicon Valley to power the next generation of exchanges and securities offerings in the U.S. and globally. Visit us at

Leave a comment

Your email address will not be published. Required fields are marked *