KSA Identity Verification: Key Regulations & AML Best Practices

In the Kingdom of Saudi Arabia, identity is no longer verified at the counter, it's verified in milliseconds, across encrypted APIs, through national databases like Yaqeen, under the watchful eyes of the Saudi Central Bank and the Saudi Capital Market Authority.

As the Kingdom accelerates toward its Vision 2030 digital transformation goals, real-time identity verification has evolved from a back-office compliance process to a frontline defense against financial crime.

This article explores what real-time identity verification means in practice for financial institutions operating in Saudi Arabia: the legal requirements, the verification platforms, implementation best practices, and how to stay ahead of both regulatory audits and fraud typologies in a region experiencing explosive fintech growth.

What is Identity verification in Saudi Arabia?

In Saudi Arabia, identity verification is a critical process employed by financial institutions to authenticate the identities of their clients. This procedure is fundamental to the Know Your Customer (KYC) and Anti-Money Laundering (AML) frameworks, ensuring compliance with regulations set forth by authorities such as the Saudi Central Bank (SAMA) and the Capital Market Authority (CMA).

The primary objective is to prevent financial crimes, including money laundering and terrorist financing, by confirming that individuals engaging in financial transactions are who they claim to be.

As per the Know Your Customer requirements stated in SAMA’s Rulebook:

“Authorised Person must take all steps necessary to be able to establish the true and full identity of each client, and of each client’s financial situation and investment objectives. Authorised Person must not open anonymous accounts, accounts using false or fictitious names, or accounts for prohibited persons notified by the Authority.”

Regulatory Framework for Identity Verification in Saudi Arabia

The Anti-Money Laundering Law (AMLL) lays the foundational legal framework for AML activities in Saudi Arabia. It mandates financial institutions to implement stringent policies for monitoring and reporting suspicious activities, thereby enhancing the integrity of the financial system. Key provisions include:

• Customer Identification and Verification: Financial institutions are required to establish and verify the identity of customers, beneficial owners, and persons acting on their behalf using reliable, independent source documents, data, or information.

• Ongoing Monitoring: Continuous scrutiny of transactions is mandated to ensure consistency with the institution's knowledge of the customer, their business, and risk profile.

The Saudi Central Bank’s AML/CTF Guidelines

The Saudi Central Bank has issued detailed guidelines outlining the requirements for KYC processes, emphasizing the verification of client identities and beneficial owners through valid original documents. These guidelines stipulate:

• Risk-Based Approach: Financial institutions must apply a risk-based approach to Customer Due Diligence, tailoring the extent of measures to the risk level associated with each customer or business relationship.
  

• Enhanced Due Diligence (EDD): For higher-risk categories, such as politically exposed persons (PEPs), enhanced due diligence measures are required, including obtaining senior management approval and establishing the source of funds and wealth.
  

• Record-Keeping: Institutions must maintain records of customer identification and transaction data for a minimum of ten years, ensuring availability for competent authorities upon request.
  

• Client Identification: Authorized persons must establish and verify the true identity of each client and beneficial owner before initiating a business relationship or executing transactions.
  

• Ongoing Due Diligence: Continuous monitoring of the business relationship is required to ensure that transactions are consistent with the institution's knowledge of the client and their risk profile.
  

• Reliance on Third Parties: While reliance on third parties for CDD measures is permitted, the ultimate responsibility remains with the authorized person, who must ensure that the third party is regulated, supervised, and has appropriate measures in place.

How Financial Institutions in Saudi Arabia Verify Customer Identities

Financial institutions employ a combination of traditional and digital methods to authenticate and verify the identities of their customers.

1. National Identity Card Verification: The Saudi National ID Card serves as the primary identification document for citizens and residents. Financial institutions validate these cards by:

Assessing Physical Security Features:

• Hologram Validation

• Optical Character Recognition (OCR)

Cross-Referencing with Government Databases:

• Data Consistency Checks

• Real-Time Verification

2. Digital Identity Verification via Nafath: The Nafath app, managed by the National Information Center, enables secure digital authentication across various platforms. It allows individuals to use their Absher account credentials for seamless access to financial services, enhancing their user experience and security.

3. Biometric Authentication: Biometric methods, including facial recognition, fingerprint scanning, and iris scanning, are integrated into the verification process to enhance security and accuracy. These methods are particularly effective in preventing identity theft and fraud.

4. Mobile Number Verification with Tahaqaq Service: To further strengthen identity verification, financial institutions link customers' mobile numbers to their accounts using the Tahaqaq service. This service cross-references the account holder's ID number with the mobile owner's ID, ensuring that the registered mobile number belongs to the account holder, thereby reducing identity theft risks.

5. Integration with Government Platforms: Financial institutions collaborate with government services like Absher to authenticate customer identities. This integration streamlines financial transactions and enhances security by allowing individuals to electronically verify their identities through trusted government platforms.

When are Businesses Required to Implement KYC and CDD Measures?

Businesses in Saudi Arabia must apply Know Your Customer (KYC) principles and CDD measures when:

1. Establishing business relationships.

2. Conducting cash transactions exceeding 50,000 Saudi Riyals.

3. Suspecting that money laundering or terrorism financing activities have occurred.

4. Doubting the accuracy of previously obtained customer information.

What Documents are Acceptable for Identity Verification?

The following documents are typically used for verifying identity:

1. Saudi Nationals:

• National Identification Card.

• Family records.

• Proof of address, such as utility bills or bank statements.

2. Individual Expatriates:

• Residence permit (Iqamah) or a five-year special residence permit.

• Passport.

• National identification for Gulf Cooperation Council (GCC) nationals.

• Diplomatic identification cards for diplomats.

• Proof of address, such as utility bills or bank statements.

3. Corporate Entities:

• Commercial register issued by the Ministry of Commerce and Industry.

• License from the Ministry of Municipal and Rural Affairs for service establishments.

• Articles of association.

• National identification card of the Saudi national owner.

• List of beneficial owners and authorized signatories, along with their identification documents.

The Role of Identity Verification in Supporting Financial Institutions in Saudi Arabia

In Saudi Arabia's dynamic financial landscape, implementing robust identity verification measures offers financial institutions several key advantages:

1. Enhancing Regulatory Compliance:

• Ensures adherence to strict Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.

• Aligns with the Saudi Central Bank (SAMA) guidelines, mitigating the risk of non-compliance.

2. Mitigating Fraud and Financial Crimes:

• Prevents identity fraud by accurately verifying customer identities.

• Aids in detecting suspicious activities early, contributing to the fight against money laundering and terrorist financing.

3. Improving Operational Efficiency:

• Streamlines customer onboarding, reducing manual effort and accelerating account creation.

• Automates verification processes, freeing up resources for more complex tasks and ensuring smoother compliance management.

4. Building Customer Trust and Satisfaction:

• Ensures secure transactions, reassuring customers about the safety of their personal information.

• Facilitates seamless access to services through digital platforms like Absher.sa or biometric solutions, enhancing the overall customer experience and encouraging loyalty.

Key Challenges in Identity Verification for Financial Institutions in Saudi Arabia

Despite advancements, financial institutions face several challenges in implementing effective identity verification processes:

1. Synthetic Identities & Stolen Credentials

2. Fraudulent Document Submission

3. Gaps in Data Consistency and System Integration

4. Risks from Over-Reliance on Automation

5. Cross-Border and Non-resident Customer Onboarding

6. Data Overload

Best Practices for Identity Verification in Saudi Arabia

To effectively implement identity verification, financial institutions should consider the following best practices:

1. Utilize Government-Backed Digital Platforms: Leveraging platforms like Absher allow for secure and efficient identity verification, aligning with national digital transformation initiatives.

2. Employ Multi-Factor Authentication (MFA): Combining something the user knows (password), something the user has (mobile device), and something the user is (biometrics) enhances security.

3. Regularly Update Verification Processes: Continuous assessment and updating of verification procedures ensure they remain effective against emerging threats and compliant with evolving regulations.

4. Ensure Data Privacy and Protection: Adhering to data protection laws and implementing robust cybersecurity measures to safeguard customer information, maintaining trust and compliance.

5. Provide Customer Education: Informing customers about the importance of identity verification and how their data is protected fosters trust and encourages cooperation during the verification process.

Read more: NFC Identity Verification

Achieve AML Compliance in Saudi Arabia with FOCAL

FOCAL offers an automated Anti-Money Laundering (AML) solution tailored to align with Saudi Arabia’s compliance requirements under the Saudi Central Bank (SAMA) and other regulatory bodies. Its suite of tools includes real-time customer verification, advanced customer due diligence (CDD), and continuous risk monitoring—all in line with local KYC and AML laws. FOCAL enables financial institutions, fintechs, and other regulated entities in Saudi Arabia to streamline their compliance processes efficiently while ensuring accuracy and full regulatory alignment.

If you would like to see FOCAL in action, please schedule a one-on-one session with one of our experts.