Kazakhstani government wants banks to identify their customers with biometry

According to a draft regulation by the Agency for Regulation and Development of the Financial Market (ARDFM), commercial banks must conduct biometric identification of customers before issuing them an online loan. The document will be available on legalacts.gov.kz for public consideration until April 8, 2024.

«Before signing an agreement of a banking loan, a bank should conduct online biometric identification of a client with the help of the Identification Data Exchange Center or biometric data obtained through a bank’s devices,» the draft document said.

A client should execute a set of actions to ensure that biometric data is safe.

Moreover, the bank must notify a borrower about the following information:

–       The maturity of a banking loan;

–       Maximum sum of a loan and the currency in which it is nominated;

–       Interest rate: fixed or fluctuated and the order of settlement if an interest rate fluctuates;

–       The size of the interest rate per annum and its real cost at the date of application by a client;

–       The complete list of commissions, tariffs and other fees related to obtaining and serving a banking loan;

–       Liabilities and risks of a client in case of default on a loan;

–       Liabilities of a pledger, guarantee, underwriter, or any other person who is part of an agreement.

A loan issuer is expected to keep all the information related to a loan (data about the time of transactions, data about information systems, data received after identification, data on notification, etc.) within the next five years.

According to an explanatory note, the move is aimed at increasing security and preventing online fraud.

Previously, the Digital Ministry proposed introducing a three-factor authentication for those who want to obtain a loan online: biometrical identification, SMS authentication, and e-signature. So far, many can obtain a loan with just a single SMS. This makes it easy for perpetrators to get a loan pretending to be someone else. Usually, they use fake phone numbers and tap SMS codes.

This is one of several measures designed to protect regular borrowers. For instance, the parliament of Kazakhstan is currently reviewing a draft law on banking lending. If it is adopted, it will make it impossible to take a loan without permission of a spouse; the law will prevent banks and microfinance organizations from claiming an interest rate to be paid after 90 days of NPL for all customer loans and will limit the upper cap of a loan at $11,000 for banks and $4,400 for microfinance organizations. In addition, the monthly payment on a loan shouldn’t exceed half of a borrower’s monthly income.

Authorities also plan to decrease the effective annual interest rate for banking loans to 42% and 50% for credits by microfinance organizations compared to the current 56% for banks. Concerning microfinance organizations, the key criterion is overpayment which shouldn’t exceed 50% of a loan.