The Federal Deposit Insurance Corporation (FDIC) issued a letter to set out guidance on activities related to crypto assets and announced, jointly with the Financial Crimes Enforcement Network (FinCEN), the three teams selected in the Digital Identity (ID) Tech Sprint.
The letter on crypto-asset guidance notes that all FDIC-supervised institutions that intend to engage in, or that are engaged in, any activities involving or related to crypto assets (also referred to as “digital assets”) should notify the FDIC. These supervised institutions are requested to provide certain information to FDIC, with the requested expected to vary on a case-specific basis, depending on the type of crypto-related activity. However, the initial notification to the FDIC Regional Director should describe the activity in detail and provide the institution’s proposed timeline for engaging in the activity. Upon receipt, FDIC will review the notification and information received, request additional information as needed, and consider the safety and soundness, financial stability, and consumer protection considerations of the proposed activity. FDIC will provide relevant supervisory feedback to the FDIC-supervised institution, as appropriate, in a timely manner. FDIC notes that there is little consistency in the definitions associated with many crypto assets and crypto-related activities, which makes it difficult to categorically identify these assets and activities. Furthermore, the structure and scope of these activities are rapidly changing and expanding. Therefore, activities, it is difficult for institutions, as well as the FDIC, to adequately assess the safety and soundness, financial stability, and consumer protection implications without considering each crypto-related activity on an individual basis. Institutions notifying FDIC are also encouraged to notify their state regulator. The crypto-related risks include anti-money laundering/countering the financing of terrorism risk, information technology risk, credit risk, credit counterparty risk exposure, systemic risk, and consumer risk.
The FDIC and FinCEN Digital Identity Tech Sprint aimed to help measure the effectiveness of digital identity proofing, which is the process used to collect, validate, and verify information about a person. Nearly 60 participants were selected from over 200 others seeking to compete in the Tech Sprint. These participants formed eight teams to present their solutions to a panel of government judges; out of these, three teams have been selected in the three categories of Creativity, Effectiveness/Impact, and Market Readiness. The FDIC and FinCEN are seeking solutions to measure the effectiveness of digital identity proofing for greater reliance in assessment and calibration of risks. Among other factors, the potential solutions could consider applicability to identify proofing that may apply to a multitude of financial products and how the community banks, largest financial institutions, and third-party service providers might partner to collectively deliver and test the solution. The solutions developed from this Tech Sprint will inform the future FDIC, FinCEN, and industry-led efforts, plans, and program to increase efficiency and account security; reduce fraud and other forms of identity-related crime, money laundering, and terrorist financing; and foster customer confidence in the digital banking environment. Innovations developed for this Tech Sprint could encompass a range of outcomes such as:
- developing a scoring model for digital identity proofing sources and processes
- findings and research-backed observations on how to enhance assessing existing solutions
- applications of artificial intelligence/machine learning programs to identify and “red flag” questionable identities leading to dynamic scoring OR
- creating other technical solutions that help answer the question "What is a scalable, cost-efficient, risk-based solution to measure the effectiveness of digital identity proofing to ensure that individuals who remotely present themselves for financial activities are who they claim to be?"
Keywords: Americas, US, Banking, Crypto-Assets, Digital Assets, Financial Stability, AML CFT, FinCEN, Tech Sprint, Fraud Detection, KYC, Regtech, Credit Risk, Systemic Risk, Basel, FDIC
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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