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FATF Digital ID Guidance to Ensure Thorough AML Compliance

The FATF (Financial Action Task Force) is a global AML (Anti-Money Laundering) and CFT (Counter Financial Terrorism) authority, that gives regulatory recommendations to its member countries. Recently it launched the first draft of its Digital ID systems guidance and requested recommendations from government authorities, businesses and other stakeholders.

FATF took the first Regtech initiative a few years back and expressed its positive attitude towards Fintech and Regtech solutions. And now it has published the Digital KYC guidance that gives basic guidelines for the businesses using and selling digital ID verification services.

AML compliance was never this easy as it is now with the advent of technological solutions for KYC and AML screening of the people. Such solutions are used in every corner of the world but still the masses were preferring to stick to the old methods of manual verification due to lack of awareness regarding the value and potential that digital AML solutions hold. This new guidance will change the perspective of such businesses.

Key factors of the FATF digital ID systems guidance

FATF issued this guidance to make sure that Fintech and Regtech industry doesn’t remain untouched in the FATF guidance. The businesses are required to run complete identity verification on their customers before onboarding them and continued AML screening thereafter.

FATF took this Regtech initiative to cover the loopholes in AML and CFT regulations for Regtech and fintech industry. Below are some of the key factors of FATF digital ID systems guidance:

Stakeholders of this guidance

This guidance is addressed to regulators, supervisors, government authorities, and businesses. That is why all these stakeholders are requested to give recommendations regarding any changes needed in the guidance.

Limitations of this guidance

This guidance doesn’t cover the CDD requirements for verification of legal persons, UBOs (Ultimate Beneficiary Owners), and nature of the business relationship.

Definition of Digital ID systems

Digital ID systems are defined clearly in this guidance and the process of digital ID screening is explained in three components. The first component is the collection and verification of the customers, the second component is related to continuous verification and AML screening, while the third component is related to the management of the collected data, its security protocols, etc.

Technical standards

FATF didn’t set any new in-house technical standards for digital ID systems and referred to some international standards-setting organizations for the technical standards that the business will have to follow to use digital ID systems.

The international organizations mentioned in the guidance for technical standards are:

  • International Organization for Standardization (ISO), International Electrotechnical Commission (IEC), Faster Identity Online (FIDO) Alliance, and the OpenID Foundation (OIDF), and the International Telecommunications Union (ITU) and GSMA (for industry-specific)

References to other laws

The FATF guidance gave references to NIFT Digital ID Guidelines and EU’s EIDAS Regulations in the digital ID systems guidance.

How this guidance will impact AML compliance?

Once this guidance has been completed successfully and implemented, it will have several impacts on the businesses and global AML/CFT regulations.

The businesses will have to change their methods of AML compliance, especially if they are using digital AML and KYC screening solutions. As for the businesses that plan to onboard an AML screening solution, now the scrutiny process will be quite easy for them as FATF has given quite a detailed explanation regarding the features of a good digital ID system.

Regtech and Fintech will absorb major impact, as this sector produces AML  and KYC screening solutions (DIgital ID systems). This guidance will bring some major changes in the regulations for these sectors. The service providers will have to make sure that their services are aligned with technical, legal and other standards of FATF. They might have to make changes in their solutions as per the new recommendations of FATF.