Meaning of liability shift

Liability shift is a way for card associations to reduce card fraud. The associations (Visa and MasterCard) insist on card companies issue cards that are chip cards. Chip cards are also referred to as smart cards. The information for the card account is held in the chip with a default for magnetic stripe.

With liability shift, associations like visa and MasterCard have insisted that card manufactures, card issuers and card acquirers get certified for EMV. All card participants must get on board and different regions all have different dates by which they have to have been certified. Banking in Kenya has also been affected by these developments in liability shift.

EMV certification is a very technical and expensive exercise. Most countries in Africa have missed the deadlines or will miss the deadline due to lack of capital resources to have EMV certification.

How liability shift works

Liability shift is a tool that is being used by the associations to ensure that the card industry is EMV certified which will reduce card fraud. The liability for fraud on a card is being shifted from the merchant to the issuer and acquirer. Where an issuer has give cards that are EMV or chip, these cards use Personal identification number (PIN) to verify card transactions.  Where a chip card has to default to magnetic stripe because the merchant POS or ATM is not EMV certified, the card transaction is verified using signature on a paper receipt.

Signature is less secure than PIN because the signature is not verified at the cardholders account level on the card management system. Pin verification means that the PIN keyed on the POS or ATM is verified by the card management system. Where the PIN is wrong, the transaction will not be authorised. Charge backs for EMV cards will be allowed for most reasons where the merchant is not ENV certified.

How liability shift affects you

As a individual cardholder, the liability shift does not affect you. If you have a corporate card, the liability shift migration does not affect you either. As a card issuer, if your cards are not Chip, you will have a problem of having merchants that accept your cards because merchants will not want to accept card transactions from non-EMV cards. As merchants and Acquirers, liability shift is very important because if the POS and ATMs are not EMV certified, charge backs on transactions become the responsibility of the Merchant or acquirer.

Issuers, acquirers and card processors must ensure that they comply with the associations to become EMV compliant within the given time frames. Failure to comply will mean losses as the liability shift for charge backs will act as income leakages leading to failed, bankrupt and closed card companies.

Several data base solutions have been relied upon to give the results in KYC compliance in Kenya and worldwide. These data bases provide legal backups and reliable reputational risk reduction measure. Information is shared from most financial institutions.

Reasons for KYC compliance in Kenya

KYC compliance in Kenya is important especially after the 9/11 terrorist attacks on the world trade centre. It was confirmed that terrorist attacks were being funded with laundered money, monies earned illegally, for example, means like narcotics trade and human trafficking, organised crime and fraud. With this in mind, it became imperative that KYC compliance in Kenya become an agenda item for all banks. KYC compliance in Kenya is no longer a suggestion for best practice but it has become a compliance mandate for banking in Kenya as in other countries worldwide.

We can therefore infer from the above that KYC compliance in Kenya is a mandate that is imposed on financial services providers or banks locally. This mandate when implemented should identify and verify the bank account applicant before the bank starts to conduct business with the customer. KYC compliance in Kenya is performed on both for the individual as well as the company or entity accounts.

To fulfil risk mitigation strategies, KYC compliance in Kenya must be performed. The key component is to ensure that the prospective customer is not on any government list as wanted for Fraud and money laundering, and is not a terrorist or a fraudster.

When doing KYC compliance checks, any revelation of the possibility of compromise of the applicant, the exposed person must be subjected to enhanced and further due diligence. This will include confirming that the applicants’ sources of wealth are not questionable. There should also not be reputational and financial risk because of who the applicant is and their public positions and associations.

Customers bank deposits and transfers are also scrutinised or monitored against a range of variables in the risk categories as defined by the financial institution. This too forms part of the mandate for KYC compliance in Kenya.

KYC compliance in Kenya: Implications for banks

The KYC compliance in Kenya mandate is very good but it has burdensome administrative implications. Administrators and operations teams must ensure that the mandate is being followed by all in the institution to avoid being penalised. There has to be proof of due diligence for audit purposes for each customer, who must also be identified conclusively.

KYC compliance in Kenya requirements for financial institutions

• Customers must be verified to confirm that they are not or never have been involved in illegal activities like money laundering, fraud or crime
• The applicant’s identity must be verified
• The forms and steps of verification for KYC must be stored securely
• The institution must find out if the applicant is listed on any watch list for fraud, terrorism and crimes like money laundering

KYC compliance in Kenya is a mandate for all financial institutions and auditors ensure that the mandate has been followed. Training must be given to all employees of financial institutions to ensure increased KYC compliance in Kenya.