The FATF Guidance on Digital Identity: What You Need to Know

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Jun 10, 2020
5 min read

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. This inter-governmental body is one of the most respected players in the field of online fraud and AML. With over 200 countries and jurisdictions committed to implementing its recommendations, it comes as no surprise that when the FATF Guidance on Digital Identity was released earlier this year, the world of KYC was listening.  

Let’s extrapolate some of the key points of the report. 

Bank The Unbanked By...Identifying Them 

One of the first, and strongest points of the guide is that traditional identification is limited, and is one of the main reasons, 1.7 billion people are unbanked. Growing up in developed countries, most of us take a lot of things for granted - a birth certificate for example. It’s something that most of us never even considered to be a luxury. A birth certificate is one of many documents required from a bank in order to open a simple bank account. 

According to UNICEF data, one in four children under age 5 do not officially exist in developing territories such as sub-Saharan Africa. This might come as a shock, but taking some time to think about it, will actually make sense of the whole situation. How long will it take for a farmer living in these territories to travel, on foot, in order to reach the city supplying a birth certificate? Even if they do, how much will it cost? Then, what about proof of residence? Is the farmer paying bills like electricity and water? 

It’s as if the banking system never thought of including people that live in developing countries. And this is where the FATF guide comes into play. The report mentions the following: “a robust digital ID can allow individuals without a traditional identification to nonetheless have a sound form of identification to access financial services and improve financial inclusion.”

It goes on to give examples of how this could actually work in developing countries. “For example, under the US National Institute of Standards and Technology (NIST) standards, ‘trusted referees’—such as village heads, local government authorities, judges/magistrates and employers can vouch for the applicant as a form of identity evidence.”

Whilst the humanitarian facet of this recommendation is both commendable and touching, there’s a business side of things that should concern every single business in the world. The companies that will manage to perfect the digital identification process will essentially unlock a  humongous, untapped market. The opportunity is big and the potential even bigger. 

A Need For Internationally-Agreed Standards For Developing Digital ID

Whilst the report makes mention of the need for a robust, internationally agreed framework for developing a digital ID, it does not go into great length in explaining what that would actually entail. Thankfully, this is a subject that has been floating around for quite some time, meaning there is the literature to explore it. 

The G20 Digital Identity Onboarding Report is a goldmine of information regarding the relationship and approach of governing bodies and the private sector, regarding the issue of digital ID. Here are two of the seven policy measures, that governments should consider in order to have an identity effective ID system that meets the needs of the financial sector:

  1. Support and empower development of private sector led services to leverage the legal ID infrastructure for building out digital layers. In doing so, the public authorities should ensure that these services are safe, reliable and efficient; these services are interoperable; and that the market is competitive;
  2. New approaches to ID are constantly emerging and public authorities should closely monitor these developments with a view to share knowledge and establish common legal frameworks at both the domestic and international level.

What becomes very apparent from these recommendations, is the need for collaboration and rapport between government and private sector. The good news is that governments are starting to pay more attention to digital identity. Norway-based telecommunications company Telia and identity verification experts Signicat partnerned and managed to reduce fraud cost by 4 million NOK in 9 months by leveraging digital identity. If that’s anything to go by, the potential is limitless. 

There is a Favourable Technology & Its Name is Artificial Intelligence

Going back to the FATF guide, one can’t help but notice the following statement: 

“The FATF Standards remain technology-neutral. We highlight examples but do not favour any technology or specific requirements for digital identity to be used for AML/CFT purposes.” 

The decision to stay away from siding with a specific breed of technology might have a lot of reasons attached to it but we’re not here to investigate those. What we are here to investigate, is the aptness and suitability of artificial intelligence in solving the problem of digital identity. The power of AI in shaping digital identification has been a subject in major conferences, reputable publications, and research. It is clear that AI has already taken the world of digital identification by strom and it’s only a matter of time before it becomes the de facto tech regarding digital IDs.

Our team here at Identomat is always willing and available to explain how AI plays a defining role in the making of our products and services. Feel free to reach out and initiate a conversation.

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