Right now, somewhere out there, a synthetic identity is being created – convincing enough to get past a background check, open a bank account, or even get a loan. This is not just a fictional scenario; it’s a daily occurrence. The latest Federal Trade Commission (FTC) reports revealed that U.S. consumer fraud complaints amounted to over $12.5 billion in losses in 2024, an astounding 25% increase from the year prior. As artificial intelligence makes it easier than ever to falsify identities at scale, financial institutions confront a fresh and accelerated challenge where their prior understanding of identity verification is no longer sufficient.
Identity fraud has developed from individual incidents to a mass-scaled threat, fully enabled by generative AI, deepfakes, and advanced forgery technologies. For financial institutions already facing evolving regulatory expectations, we enter a new phase where we must adopt a new paradigm, one where identity verification is not simply a compliance expectation but a core piece of their security strategy.
A regulatory environment in transition
The Consumer Financial Protection Bureau (CFPB) issued guidance in June 2025 with a brand new exemption allowing financial institutions to verify Social Security Numbers (SSNs) and Taxpayer Identification Numbers (TINs) through trusted third-party verification providers. Although this seems to be a minor workplace change, it indicates a larger momentum shift for the government and regulators understanding the role of technology as part of managing compliance and risk.
The move comes as regulators grow increasingly aware old-school compliance systems cannot handle new-age threats. From the U.S. to the U.K. and across the EU, a clear shift is emerging in regulatory thinking: it’s no longer enough to show that a process was followed, you must demonstrate that the process actually works.
A textbook example is the CFPB’s enforcement action against Equifax in the U.S. Despite having written dispute-resolution policies, Equifax failed to properly investigate consumer complaints, reinserted previously deleted errors into credit files, and ignored consumer requests to block identity theft-related information.
As a result, the CFPB imposed a $15 million civil money penalty, sending a clear signal: having procedures on paper means nothing if those procedures don’t prevent real-world harm.
Third-party identity verification is the fastest way to accurately verify key identity details during onboarding. Banks and financial institutions need to now perform verification of SSNs and TINs in real time rather than waiting days on manual checks or trying to access some siloed database. This will speed up the customer journey and open up the door for many synthetic identities into the system.
Regulatory expectation is increasing on fraud detection by institutions, as it happens, not weeks after an audit. Therefore, if colleges continue to maintain outdated verification systems, they may perhaps be more open to scrutiny and, hence, growing exposure to operational and reputational risk.
Why AI-powered tools are now essential
Modern fraud is fast-paced and complex, so financial institutions today prefer AI-powered verification technologies in response. Tools like facial recognition and liveness check, to chip scanning and behavioral biometrics, have fast become standard elements in defense schemes.
Each technology adds a new layer to fraud prevention. Behavioral biometrics observe how a particular person types and interacts with a device, thus inhibiting an impostor from cleverly impersonating a genuine user. Facial recognition can also detect irregularity in blinking, lighting inconsistencies, or even image compression to unmask deepfakes. Liveness detection assures that an impostor is physically there and not just playing back a video or image.
By reading the chip inside a passport or ID and directly comparing the data with what was originally issued, NFC chip readers, which are integrated into a lot of smartphones, can retrieve data straight from the chip. Compared to superficial image analysis, this provides a far stronger guarantee of legitimacy. Institutions lessen the downstream burden of manual investigations, case reviews, and customer impact by detecting fraud at the onboarding stage.
Why compliance needs a rethink
For many years, compliance was mostly reactive, with an emphasis on post-event reporting, documentation, and response. However, financial institutions can’t afford to wait until something goes wrong because identity fraud is getting more complex and threats powered by AI are getting faster. These days, compliance must be preemptive and smoothly integrated into daily operations.
It takes more than simply checking a box or using one tool to create a robust defence against fraud. It entails integrating various technologies, such as document scanning, live behaviour monitoring, and identity checks, in a seamless background operation. This kind of setup, if properly done, not only rules out fraud – it simplifies onboarding, accelerates the speed for actual customers, and reassures the regulators without hindering business operations.
And this shift is not just about compliance. It’s about making your business secure and earning your customers’ trust for the long term. The banks and financial institutions that see ID verification as a central part of their strategy, and not simply a checkbox to get through, are the ones that will best be positioned to address the challenges of the future.
Compliance in the future will not be paper-based or one-a-year, check-up-based. It will be decision-driven at speed, solutions that work and evolve and respond to emerging threats, and collaboration across the industry. The successful firms will be those that stop fraud in its tracks from the outset while making it safe, frictionless, and equitable for all concerned.
About the Author
Jimmy Roussel is the CEO of the IDScan.net. He is a tried-and-tested growth expert specializing in accelerating the expansion of technology companies across the US. At IDScan.net, Jimmy plays a vital role in continuing IDScan.net’s best-in-class identity verification solutions, servicing businesses across the US to increase their anti-fraud measures to protect revenue and increase customer safety.
Jimmy can be reached online at https://www.linkedin.com/in/jimmy-roussel-b932154/ and at our company website https://idscan.net/
