Page 24 - ITU-T Focus Group Digital Financial Services – Executive Summary

ITU-T Focus Group Digital Financial Services
Executive summary

regulations may be unclear regarding the acceptability of alternate proof of identity, and providers may adopt
a conservative approach to avoid the risk of penalties for AML/CFT noncompliance.

National identity systems can help to ensure that poor and unbanked consumers can meet know your
customer (KYC) requirements. Financial authorities in countries with well-developed systems can cooperate
with national identity authorities and DFS providers to ensure that providers have access to these systems at
a reasonable cost. Authorities can also explore how these systems can reduce barriers to account opening,
such as by linking account opening to a national identity number, leveraging the credentials provided during
subscriber identity module (SIM) registration, and/or using biometric data to reduce fraud risk.
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Authorities in countries that lack a universal national identity system should embrace a risk-based AML/
CFT approach. Authorities should permit providers to use simplified KYC measures for accounts with low
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transaction and balance limits and limited functionality, including remote account opening when appropriate.
Authorities may also wish to consider establishing a “zero KYC” tier to enable customers to use low-value
transaction accounts without proof of identity.

5 Further considerations

The reports and recommendations that follow discuss challenges faced by DFS stakeholders and offer
recommendations for addressing these challenges. When contemplating how to implement these
recommendations, DFS authorities and other stakeholders should consider the following:

• Stage of market development: While some recommendations are highly relevant during all stages of
market development, others become more important once a DFS market has emerged. For example,
creating a level playing field is often an important prerequisite for market development and remains
relevant as the market matures, while certain issues related to service quality may come into focus only
once DFS adoption rates are higher.
• Country context: The recommendations and conclusions included in the Focus Group reports are intended
to apply globally, but it is impossible to anticipate all of the unique circumstances and challenges faced in
a particular country. For example, recommendations around tiered KYC frameworks need to be applied in
countries with varying degrees of money laundering or terrorist financing risk, while recommendations
around expansion of 3G network coverage need to be applied in countries with unique geographic and
demographic characteristics. DFS authorities should seek to apply the recommendations and implement
the principles in a manner that makes sense in their specific country context. Effective consultation with
private-sector stakeholders, consumer advocates, DFS technical experts, development partners, and other
DFS stakeholders will be key to ensuring that the recommendations and principles are implemented in
a manner that fosters the development of a safe and enabling DFS ecosystem.

• Tradeoffs: In theory, implementation of the recommendations and principles can facilitate the development
of a DFS ecosystem that: (i) delivers high-quality, transparent services to poor consumers at low cost;
(ii) offers sufficient pecuniary incentives to both established players and new entrants to promote DFS
market development and foster innovation; and (iii) effectively mitigates risk to consumers (demand
side) and the formal financial sector (supply side). In practice, there are often significant tradeoffs with
respect to innovation and risk, competition and stability, and service quality and cost. For example, while
innovative services can reach previously excluded customers, the risks of such services are typically less
well-understood than the risks of traditional services. Similarly, highly competitive DFS markets can drive
down costs but can also encourage risky behavior (such as poor loan underwriting practices) that can

72 For a discussion of the use of biometric identity verification systems for DFS registration and transactions, see ITU FG DFS Techni-
cal Report (2017), Technology Evolution and Innovation in Digital Financial Services.
73 A risk-based approach is also appropriate in countries with well-developed national identity systems. For a list of relevant pub-
lications discussing the risk-based approach to AML/CFT, see FATF, Risk-Based Approach, http:// www. fatf- gafi. org/ documents/
riskbasedapproach/? hf= 10& b= 0& s= desc(fatf_ releasedate).

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