Customer Identity Verification in Japan and Incoming Technical Challenges / 日本におけるお客さま本人確認と今後の技術的課題

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Session Title Customer identity verification in Japan and incoming technical challenges KYC Team

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Tim Tosi France ➔ UK ➔ Japan! ● AdTech, Mobility startup and FinTech Joined Merpay in January of 2020 ● Backend Engineer and Tech Lead in KYC team ● Engineering Manager (EM) from March of 2021 (currently KYC Team and MP CSTool Team) Merpay Engineering - EM

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Manpreet Kaur India ➔ Japan! ● Banking, Telecom, ecommerce Joined Merpay in October of 2021 ● Backend engineer in KYC Team Merpay Engineering - Backend Engineer

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Christophe Labonne France ➔ Japan! ● Telecom, Big Data, FinTech Joined Merpay in June of 2021 ● Backend Engineer and Tech Lead in KYC team ● Tech Lead in MP CSTool team Merpay Engineering - TL

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About questions We welcome your questions! Post to our YouTube chat or use X（Twitter） hashtag #MerpayMercoinTechFest

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Customer identity verification in Japan and incoming technical challenges

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Identity Verification before eKYC Identity Verification Act (本人確認法) 01 Act on Punishment of Organized Crimes and Control of Crime Proceeds (組織的な犯罪の処罰及び犯罪収益の規制等に関する法律) 02 Act on Special Measures Concerning Narcotics and Psychotropic Substances Control (国際的な協力の下に規制薬物に係る不正行為を助長する行為等の防止を図るための麻薬及び向精神薬取締法等の特例等に関する法律) 03 Three laws covered what is now considered to be eKYC:

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Identity Verification Act Goals International Crime Prevention 01 Domestic Fraud Prevention 02

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Purpose of the Law Prevent criminals from laundering proceeds of crime 01 Prevent the creation of fictitious accounts used for fictitious billing fraud 02 Obliging financial institutions to perform identification procedures and preserve records 03 Require financial institutions to verify the identity of customers for certain transactions 04

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When you should identify a customer When you start a transaction with a financial institution 01 Transfers exceeding 100.000 yens 02 Transfers via cash or checks where the amount exceeds 2.000.000 yens 03

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Identity Verification, how? For individuals: Name, date of birth and address are required Following identification papers are accepted: ● Residence card ● insurance card ● driver license ● pension book ● passport ● residence card (for foreigners)

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Identity Verification, how? (cont.) For corporations: The person in charge of the corporation will proceed to the identity verification On top of that, the corporation should deliver a certificate that shows: ● The official name of the corporation ● The location of its head office

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Conditions to be considered verified The customer met directly with a staff from the financial institution 01 The customer provided an official identification paper 02 The customer provided a password or any kind of special identification known only to the customer 03

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Issues that happened with the law School fees 01 Deposit frauds 02 Personal information collection 03

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eKYC

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Backdrop of events shaping current state of KYC July 1989 1990 July 1992 FATF Financial Action Task Force Ministry of Finance’s notice to perform identificaton Globally Japan FATF: The 40 recommendations The Anti-Drug Special Provisions Law 1st FATF and Japan mutual evaluation 1994 Terrorist attacks in the US 2001 The Act on Prevention of Transfer of Criminal Proceeds 2007 2018 Amendment of the Ordinance for Implementation of the Act

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In compliance with the “Act on Prevention of Transfer of Criminal Proceeds” Why to perform eKYC?

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01 Criminalizing money laundering 02 Confiscating criminal proceeds 03 Preventing terrorism financing 04 AML/CFT: Important laws Imposing CDD and other necessary obligations

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Document submission 01 Legitimacy of documents 02 Liveness check 03 Visual confirmation 04 eKYC: Identity verification of Customer Driver’s Licence 50% 20% My Number Card Residence Card 3% 30% 45% 48% 3% Others % of documents submitted for eKYC at Mercari

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eKYC: Identity data verification Name (Last,first) Date of Birth Address Purpose of Transaction Occupation

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eKYC at Mercari

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Reads the electronic certificate for signature Confirms the validity with the public personal authentication service, JPKI eKYC using Integrated Circuit(IC) chip

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eKYC using My Number card IC chip

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FSA guidelines Foreign residents can use residence card or special permanent resident card only eKYC updates for foreign nationals Additional information to submit: Nationality, Visa type, Card expiration

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Potential public reception

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Emerging new threats: Deepfake

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Emerging new threats: Countermeasures Bypass eKYC process with synthetic video generation ● Merpay X R4D project ● Big thanks to Matthieu Destephe

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A possible future for eKYC: MyNumber About the “Partial Revision of the Law Concerning the Use of Personal Identification Numbers to Identify Specific Individuals in Administrative Procedures” Sources: Japan Digital Agency

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A possible future for eKYC: Not Flawless Jan 2016 MyNumber System Launch Official com. Reported Issues New Law Enacted Driver’s License Planned Integration Improper Residence Cert Issuance Health Insurance Info Linkage Error Bank Account Issue Announcement Oct 2021 May 2023 Jun 2023 Mar 2025 Sources: Asahi Shimbun / Mainichi / Japantimes