FAAA backs Digital ID to reduce client identification exercises
The Financial Advice Association Australia (FAAA) has thrown its support behind the use of Digital ID in the financial advice profession to replace challenging and time-consuming client identification exercises.
In its latest submission to the Senate Economics Legislation Committee Inquiry into the Digital ID Bill 2023 and the Digital ID (Transitional and Consequential Provisions) Bill 2023, the FAAA said it specifically supports the prospect of Digital ID replacing the existing manual, hard copy processes with client identification and verification for Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) purposes.
The submission noted that client identification is currently a challenging and time-consuming exercise, with the missing piece being Digital ID, and urged the rollout of the legislation be accelerated.
“The economy needs this functionality as soon as possible, and delays are damaging to the nation’s future growth and client data security,” it said.
It continued that advisers often act on their clients’ behalf when interacting with financial institutions and handle personal, sensitive and delicate information about financial affairs and medical records, relationship histories and general welfare.
Advisers also have a critical role to play in the identification of clients and verification of ID documents provided by clients under the AML/CTF legislation.
“In the financial advice profession, a great deal of care is used to protect the highly sensitive information transferred between advisers and clients,” the submission stated.
“For example, an adviser may be privy to not only a client’s salary but also that of their spouse, their medical history, criminal history and other private details about their financial arrangements.”
In its initial submission on Digital ID, the FAAA said safeguarding the registration process must have the highest priority to support the public’s willingness to engage with its use.
“Financial advisers play a critical role in facilitating the identification of clients when seeking to establish financial product accounts for clients. This is a requirement of the Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) legislation,” it said.
“The information and other steps required of financial advisers in this process may vary based upon the client’s personal circumstances, including factors such as whether they are a US resident, politically exposed person or operate in overseas jurisdictions.”
As advisers are required to retain copies of identification documents and records of inquiries made as part of this process for several years, they need to retain significant amounts of sensitive ID documents and sometimes have to forward these documents to financial product issuers who must also identify their customers.
“It is certainly a key security risk, and one that generates ongoing concern and additional costs,” the submission said.
“We envisage that Digital ID could replace much of the identification and verification requirements. In the future, it may also have a role in terms of Company Digital IDs, which would remove the requirement for financial advisers to collect and retain this sensitive information and deliver a significant benefit to both advisers and their clients.”
Additionally, the FAAA said it would like to see more direct consideration of how Digital ID will impact the AML/CTF regime and how it can be used to improve the current identification obligations that apply.
“This is a critical outcome and directly relevant to the objective of minimising the requirement for commercial operations to collect and store sensitive personal identification documents,” it added.
Of particular importance to the industry is the implementation of Phase 4 of the rollout, which the FAAA said could only be achieved if public confidence was gained by the successful rollout of the previous three phases involving government agencies.
“A responsive regime and rollout, spearheaded by a minister who aims to include as many services and applications for the Digital ID as possible, should be supported,” the submission said.
Additionally, it noted that the collection and safe storage of personal data is a critical issue for financial advisers, which is essential for them to perform their duties but often difficult to maintain under the current regime that involves substantial and costly manual processes.
“Digital ID solves many of these problems. Security of clients’ data is a key concern for both advisers and the clients themselves,” it said.
However, it noted that transparency regarding the design and construction of Digital ID is crucial if the government is to regain the public’s trust following failures in similar schemes such as the Australia Card, the Access Card and the My Health Record rollout.
“While the FAAA does not share the concerns voiced about government overreach, public trust in the system is paramount,” it said.
“Distrust of identity regimes is rife, and the federal government should go out of its way to be transparent about any contracts and tenders entered into for its build.”
It concluded that Digital ID must be supported by most Australians, or the current patchwork of alternative sources of identity will remain.
“Political leaders mustn’t politicise the Digital ID or engage with anything other than genuine and well-intentioned feedback aimed at improving the regime, otherwise, there is a high risk that the public will not support the regime,” it said.
This article previously appeared on Money Management's sister title SMSF Adviser.
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