Guidance on Digital Identity
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FATF issued Guidance on Digital Identity in March 2020 to facilitate better use of digital solutions for undertaking customer due diligence and future-proof anti-money laundering systems. It helps governments, financial institutions and other relevant entities apply a risk-based approach to the use of digital ID for customer identification and verification of natural person customers. This Guidance draws on a number of digital ID assurance frameworks and standards to draw links between the technical world of digital ID and those developing policies for the financial sector. The Guidance clarifies that trustworthy digital IDs can reduce the risks and provide easier, cheaper and more secure methods to identify individuals. The Guidance also clarifies that non-face-to-face customer-identification and transactions that rely on reliable, independent digital ID systems with appropriate risk mitigation measures in place, may present a standard level of risk, and may even be lower-risk.
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. The FATF Guidance specifically outlines how digital ID systems with different assurance levels for identity proofing/enrolment and/or authentication can be used to implement tiered CDD, allowing clients a range of account functionalities depending on the extent of CDD performed, and particularly in situations of lower risk.
Adoption of digital ID systems has the potential to address potential delays in cross-border payments. The FATF Guidance recommends that authorities monitor developments in the digital ID space with a view to share knowledge, best practices, and to establish legal frameworks at both the domestic and international level that promote responsible innovation and allow for greater flexibility, efficiency and functionality of digital ID systems, both within and across borders. Greater standardisation or mapping of digital ID standards could facilitate greater cross-border recognition of digital IDs for customer due diligence and facilitate new payment mechanisms and improve the efficiency of existing payment mechanisms.