Federal financial regulators have clarified that banks and credit unions can use government-issued digital credentials to verify customers’ identities, potentially streamlining account onboarding. But according to an analysis by Anderson Insights, reliance on digital credentials could place new demands on institutions’ verification technology, compliance procedures and fraud controls.

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The Financial Crimes Enforcement Network (FinCEN), together with staff from federal banking agencies, issued two frequently asked questions (FAQs) Sept. 8 addressing the use of state-issued mobile driver’s licenses and other government-issued verifiable digital credentials (VDCs) under the Bank Secrecy Act’s Customer Identification Program (CIP) requirements.

The guidance establishes that qualifying digital credentials can satisfy existing documentary identification requirements. However, institutions must ensure their systems can use those credentials to establish the reasonable belief that they know a customer’s true identity required by the law.

According to Anderson, the central issue is not whether digital identification is legally acceptable, but whether banks’ technology, records and exception-handling procedures can support a defensible identity-verification decision.

The FAQs distinguish verifiable digital credentials from electronic images of traditional identification documents.

A VDC contains information about an individual that is digitally signed by the issuing authority, cryptographically bound to a device and protected by an activation factor, such as a PIN, fingerprint or facial recognition.

Unlike a photograph or screenshot of a driver’s license, a VDC can provide cryptographic evidence concerning the credential’s issuer and integrity.

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