As Digital ID Systems Expand, FATF Releases Guidance for Financial Institutions


  • The FATF organization released a 77-page guidance in digital identity for financial institutions, specifically regarding cryptocurrency and the use of DLT.
  • The guidance focuses on certain “areas of focus” like the way that digital identity impacts policies for AML/CFT.

Cryptocurrency is in a constant state of innovation lately, and the whole of the financial world needs to be prepared. The Financial Action Task Force (The Financial Action Task Force is preparing financial institutions and governments on the expansion of digital identification systems by sharing its latest AML and CFT guidelines.) has already prepared for the way that digital identification systems are evolving, and they’ve recently published draft guidance on this exact topic to help financial institutions be ready as well.

The guidance came out on Thursday regarding digital identity, which is meant to support regulated entities, governments, and other stakeholders. The guidance elaborates on the enforcement of regulations concerning anti-money laundering and counter financing terrorism. This organization, which functions across multiple governments, hopes to focus on the issues that continue to arise for security and transparency, especially as financial transactions start becoming more digital.

According to the website, FATF has offered several questions that are meant to be “areas of focus.” By November 29th, 2019, private stakeholders are meant to offer feedback via email. The areas specifically include risks that may be threatening to the ability to enforce AML and CFT regulations, as well as the way to improve transaction monitoring and the possibility of impacting requirements for keeping records for FATF.

One of the tools named as a way to improve digital ID network growth is blockchain technology, or distributed ledger technology.

Authorities have been urged by FATF to:

“develop clear guidelines or regulations allowing the appropriate, risk-based use of reliable, independent digital ID systems by entities regulated for AML/CFT purposes.”

Crypto exchanges and other regulated institutions need to:

“take an informed risk-based approach to relying on digital ID systems for Customer Due Diligence.”

The guidance, which takes up 77 pages, discusses many issues that digital ID systems may face, like the way to use them for due diligence regarding customers. Along with helping financial institutions, the guidance is also supposed to be part of the efforts to reduce the risks of money laundering and terrorist financing, correlating with additional stablecoins being launched in the market. FATF highlighted the necessity for digital identity involving payment systems, helping to identify the stakeholders involved in stablecoin-related transactions.

The blockchain industry has seen a lot of activity from FATF this year, as the organization published new guidance over the summer involving cryptocurrency exchanges and other VASPs. This guidance pushed for countries to implement strict KYC protocols, managing the risks involved with digital asset transfers.

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