On day 6 (10 March 2021) of the committee stage of the Financial Services Bill in the House of Lords I put forward a large group of amendments under the broad heading of fintech. One important amendment would introduce distributed digital identification (Digital ID) and others would encourage digital operational resilience and the modernisation of UK law to allow FMI to process digital instruments.

First to the full text of the digital ID amendment:

Insert the following new Clause—

“Digital identification

(1) Within six months of the passing of this Act, the Secretary of State must publish the Government’s plans for the development and deployment of a distributed digital identification (“Digital ID”) for individuals and corporate entities in the financial sector.

(2) The Digital IDs should be— (a) scalable, (b) flexible, and (c) inclusive.

(3) The Secretary of State must also undertake a public engagement campaign around Digital IDs to raise awareness and participation in the process.

(4) In this section— “Digital ID” means a set of attributes related to an entity, as according to the International Organization for Standardization and International Electrotechnical Commission framework 24760-1;

“scalable” means capable of national deployment; “flexible” means capable of resilience and workable as technologies develop and evolve; “inclusive” means capable of including all entities and individuals, not least, in respect of their protected characteristics as set out in the Equality Act 2010.”

Amendment 115, Lord Holmes of Richmond, Committee Stage Day 6, Financial Services Bill, House of Lords, 10 March 2021

I understand all of the issues around digital ID, how quickly it triggers the deep distrust and anxiety around ID cards and all of the associated concerns around freedom, trust and privacy. But the reality is, we need to really grapple with, deploy and deliver a distributed digital ID system. There have been what can probably be best described as a number of false starts when it comes to digital ID, but this is such an underpin to so much of the potential which fintech can deliver, and it is vital that we start to move at pace on it.

In thinking about identification requirements the first question should always be, “What do you want? You asked for my date of birth, but do you want my date of birth, do you need my date of birth, or do you just need to know that I am over 18? Do you just need to know that I am over 18 in a certain circumstance for a certain period?” Similarly, asking for an address or a utility bill is almost quaint in its antiquity, as if somehow to gain a utility service you have gone through a sophisticated ‘know your customer’ (KYC) process.

My amendment suggests that the digital ID needs to be scalable; it needs to be flexible so that it can evolve—when and if quantum computing comes in, there will be a need to rehash all the keys for identity through quantum rather than current means. Crucially, it needs to be inclusive, not just in respect of all the protected characteristics but inclusive in its broadest, brightest, brilliant sense.

Finally, the Government would be advised to undertake a large piece of public engagement around digital ID. For understandable reasons, there is extraordinary fear and uncertainty about the concept. That is not unfounded; if it is got wrong, it goes badly wrong. We need to get the public engagement right, as was the case with Lady Warnock’s commission on fertility treatment —at first blush, nothing could be seen as more alien than test-tube babies, but it became incredibly well understood and popular through that public engagement. If we get that engagement right with distributed ID, I believe that there will be similar support for it across the nation.

The next amendment on digital operational resilience:

Insert the following new Clause—

“Digital operational resilience

(1) Within 6 months of the passing of this Act, the Secretary of State must conduct a review of the digital operational resilience of financial services providers, and assess any consequential risks for the UK financial system.

(2) Following the review the Secretary of State may by regulations impose requirements on financial service providers to ensure a standard of digital operational resilience.

(3) Regulations under subsection (2) are subject to the affirmative procedure.”

Amendment 119, Lord Holmes of Richmond, Committee Stage Day 6, Financial Services Bill, House of Lords, 10 March 2021

This amendment seeks to probe whether the government and the regulators currently have the grip that they would want across the financial services sector to understand what the consequences are without the level of digital operational resilience which is required? I believe there are also potential standards that could be drawn out in this area of DOR?

The final amendment here is on the modernisation of UK law to allow FMI to process digital instruments:

Insert the following new Clause—

“Modernisation of UK law to allow financial market infrastructure to process digital instruments

(1) Within three months of the passing of this Act, the Secretary of State must report to Parliament on the legislative and regulatory changes required to enable the modernisation of UK law to allow the UK’s financial market infrastructure to process digital instruments.

(2) The report should— (a) consider the need to dematerialise securities at the same rate as the European Union; (b) consider the need to review insolvency of companies regulated by the PRA or FCA, central securities depositories regulation and the settlement finality directive to allow digital technology; (c) consider how the trading of tokenised securities (such as company shares using a blockchain based register) can be facilitated on investment exchanges and multilateral trading facilities; and (d) consider whether and how digital technology in post-trade processes should be embraced.”

Amendment 136E, Lord Holmes of Richmond, Committee Stage Day 6, Financial Services Bill, House of Lords, 10 March 2021

Again, it would seem opportune to look at how we can transform our markets and bring in all the powers, with many of which we have a competitive advantage within the UK. In City in the mid-1980s we had the ‘big bang’, if we get all these fintech changes right, we truly could have big bang 2—I do not even need to mention that it will be 2.0—for the benefit of the entire UK, not just the square mile.

Digital ID is as important to corporate entities as individuals and is not just about security—important though that is—and privacy. As with all the initiatives proposed by these amendments, it can and would be a driver of growth. It is critical that the government act on these important areas of critical digital infrastructure for an (even more) successful fintech industry.

Computer Weekly, Zombified Gov.uk Verify is officially dead – so what’s next?, 26 March 2021

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Financial Services Bill Amendment: Introducing a Review of Financial Services Regulations.

Financial Services Bill Amendment: Adding a Financial Inclusion Objective to the Remit of the Financial Conduct Authority

Financial Services Bill Amendment: Duty to Report on Environmental, Social and Governance Status of Funds

Financial Services Bill Amendment: The Case for Regional Mutual Banks

Financial Services Bill Amendment: Lead Generators – Time for Regulation

Financial Services Bill Amendment: Updating the Know Your Customer [KYC] -Identity Verification- Process

Financial Services Bill Amendment: Provision of Debt Advice

Financial Services Bill Amendments: Timetable and Funding for SDRP Arrangements

Financial Services Bill Amendment: Sale of Mortgage Loan Books

Financial Services Bill Amendment: Financial Policy Committee & Financial Exclusion

Financial Services Bill Amendment: Review on Cashback Without Purchase

Financial Services Bill Amendments: Ethical AI

Financial Services Bill Amendments: Fintech Strategic Review Recommendations

Financial Services Bill Amendments: Distributed Ledger Technologies

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