On September 7, 2022, Jimmy Kirby, the Acting Deputy Director of the Financial Crimes Enforcement Network (“FinCEN”), gave remarks during the 2022 Federal Identity Forum & Exposition (“FedID”) on the importance of securing digital identity.

In his opening comments, Kirby emphasized digital identity as “fundamental to the effectiveness of every financial institution’s AML/CFT program.”

As Kirby noted, an “AML/CFT regime that merely accounts for and reacts to new threats, however, is not sufficient.” Accordingly, FinCEN is leveraging BSA data from over 3 million Suspicious Activity Reports (“SARs”) filed in 2021 to categorize, analyze, and quantify identity-related crime. Kirby suggested that there have been potential breakdowns in the identity verification process including verification issues and evasion, identity theft, and other impersonation-related scams across all types of SAR filings.

In 2021, financial institutions reported a substantial increase in potential identity verification, impersonation, and compromise-related suspicious activity and that the dollar values associated with filings related to a variety of cyber and identity related activities have increased dramatically. Kirby highlighted the importance of collaboration between the public and private sectors as critical to idea generation around mitigating the risks associated with innovation related to digital identities. In addition to public-private collaboration, Kirby stressed the importance of expanding partnerships between agencies and regulators “to approach these innovations in a way that recognizes, not only the risks that they pose, but the opportunities that they present.” The same holds true for financial institutions. Banks must dedicate resources to continue to stay a step ahead.

To be proactive in building secure, privacy-preserving digital identity solutions, financial institutions must continue to coordinate among their cyber security, fraud, and financial crime areas and consider specific digital identity standards as they build out their identity proofing and authentication processes. Financial institutions must also “establish with confidence who their customers are on the front end and throughout the customer relationship” to maintain the integrity of customer identity and ability to “confidently know with whom it is doing business, as well as customers’ confidence that they will not be a victim of identity theft or otherwise defrauded.”

Given FinCEN’s increased focus on digital identity safeguards and identity-related crimes arising out of innovation in the ever-changing digital landscape, financial institutions must take affirmative steps to review the effectiveness of their digital service offerings, take advantage of opportunities to share information and collaborate across the public and private sectors, and improve existing systems and technologies used to detect, respond to and prevent identity related crimes.

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