Digital payments are growing at an estimated 12.7% annually, and are forecast to reach 726 billion transactions annually by 2020. By 2022, an estimated 60% of world GDP will be digitalised. For the FATF, the growth in digital financial transactions requires a better understanding of how individuals are being identified and verified in the world of digital financial services. Digital identity (ID) technologies are evolving rapidly, giving rise to a variety of digital ID systems. This Guidance is intended to assist governments, regulated entities and other relevant stakeholders in determining how digital ID systems can be used to conduct certain elements of customer due diligence (CDD) under FATF Recommendation 10.
An understanding of how digital ID systems work is essential to apply the risk-based approach recommended in this Guidance. Section II of the Guidance briefly summarises the key features of digital ID systems that are explained in detail in Appendix A.
Section III summarises the main FATF requirements addressed in this Guidance, including the requirement to identify and verify customers’ identities using ‘reliable, independent’ source documents, data or information (Recommendation 10(a)). In the digital ID context, the requirement that digital “source documents, data or information” must be “reliable, independent” means that the digital ID system used to conduct CDD relies upon technology, adequate governance, processes and procedures that provide appropriate levels of confidence that the system produces accurate results. The Guidance 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.