Financial bodies should call for digital IDs to handle financial crime

Verifying a person’s identity and their associations with firms, assets, and other individuals can be complicated, expensive, and error-prone. However, advanced solutions such as biometrics mean Financial Institutions can now create and maintain digital ID solutions that benefit customers, the financial services industry, and potentially other industries.

The financial organizations have always been susceptible to fraud, and as digitization becomes more pervasive, cybersecurity risk has become another security challenge. Cyber breaches may result in reputation loss as well as financial loss. Thus they have tried to safeguard themselves and customers by beefing up scrutiny of individuals and their associations; but the process is time-consuming, operationally burdensome, expensive, inefficient, and prone to errors.

UK financial institutions and payment processors should collaborate on the creation of a national digital identity scheme to face the threat posed by money laundering and payments-related financial crime, according to a new report published by the Emerging Payments Association (EPA). The issue of money laundering in the UK has become ever more pressing in recent years. The country’s National Crime Agency observed in its recent national strategic assessment that the scale of money laundering through UK could potentially be “in the hundreds of billions of pounds” annually. 

The EPA report, 'Facing Up To Financial Crime', drafted with the support of a syndicate of EPA members led by Refinitiv and Barclays, explores the latest developments in the way fraudsters and money launderers abuse payment services and bank accounts to commit serious financial crimes, setting out 12 recommendations for industry members to take action.

These include guidance on the effective use of technology to tackle the threat, as well as advice on enhancing information sharing and suggestions for comprehensive and consistent reporting of criminal activity. The report also recommends championing digital identity as key to tackling these abuses, calling for payments and financial services companies to harness new technologies and to work collaboratively in order to create a "world-leading digital identity solution for the UK.

Tony Craddock, director general of the EPA, comments, “Financial crime concerns every company in the payments industry. Because it affects everyone involved in moving money, whether consumers, businesses or governments. In this report, we have identified what’s really going on, by whom and at what cost. We have developed recommendations for action that are clear, timely and impactful and we call upon interested parties to collaborate with us."

However, in order to be broadly beneficial, digital IDs must be usable across banks and other financial industries. Portability will necessitate collaboration among banks to create common standards. While banks must ensure that digital IDs are secure, customers will undoubtedly want to retain control of their IDs and decide where to share the information.

Though digital identification is making a plea, because it helps banks, financial institutes as well as benefiting customers and businesses, concerns around interoperability and default liability still exist. They have to work collaboratively to encourage broader adoption, acceptability, and standardization to drive the full potential of digital IDs.

Globally emerged potential Digital IDs

*  Unique Identification Authority of India (UIDAI) website - https://uidai.gov.in/your-aadhaar/about-aadhaar/feature-of-aadhaar.html

* Tearsheet, “Canadian banks are building a digital identity tool,” Tanaya Macheel, March 20, 2017, http://www.tearsheet.co/data/canadian-banks-are-building-a-digital-identity-tool

* American Banker, “Banks can profit from digital ID movement,” Bryan Yurcan, May 17, 2017, https://www.americanbanker.com/news/banks-can-profit-from-digital-id-movement-even-if-they-dont-control-it

* World e-ID and Cyber Security, “Nordic Digital Identification - A Survey,” accessed on Sep 25, 2018, https://www.worlde-idandcybersecurity.com/session/nordic-digital-identification-a-survey