The Financial Action Group (FATF) wants financial institutions to prepare for the global expansion of digital identification systems.
The FATF released on Thursday its draft Digital Identity Guidance Document for governments, regulated entities and other stakeholders to enforce regulatory compliance. the fight against money laundering and the financing of terrorism (FT).
The goal of the Intergovernmental Organization is to address emerging issues of security and transparency as the process of financial transactions becomes more digital, depending on direction.
On its website, the FATF has identified a number of issues as "areas of intervention", asking private stakeholders to send their comments by e-mail by November 29, 2019.
Areas include the specific risks that digital identity could pose to the application of AML / CFT; how could this support financial inclusion? how a system can help monitor transactions; and the potential impact on the implementation of the FATF requirements for record keeping.
In particular, the guide specifically lists DLT (Distributed Ledger) technology as a tool that can contribute to the growth of digital identification networks. A number of blockchain companies have already set their sights on this particular area, such as Civic.
In its guidelines, the FATF called on the authorities "to develop clear guidelines or regulations for the appropriate, risk-based use of independent and reliable digital identification systems by regulated entities for the purpose of AML / CFT.
At the same time, the FATF suggests to regulated institutions, such as cryptocurrency central banks (referred to as virtual asset service providers or VASPs), "to adopt an informed, risk-based approach, relying on digital identification systems for customer due diligence ".
The 77-page draft guide describes in detail many problems with digital identification systems, including their reliability and independence, as well as how they could be used to carry out pre-customer checks.
The draft guidelines are also part of the FATF's efforts to combat money laundering and terrorist financing because of the rise of stable coins in international financial systems.
The organization also highlighted the importance of digital identity in payment systems, which could be used to identify stakeholders in fixed currency transactions.
The FATF has been increasingly active in the blockchain sector this year. In June, the organization released its guidelines for cryptographic exchanges and other VASP systems, calling on countries to implement strict KYC protocols for the transfer of digital assets.
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