UK financial authorities work with industry on digital ID, US regulator signals support

UK payments and self-sovereign identity firm Nuggets has worked on developing a digital wallet solution for a retail use case of a potential UK Central Bank Digital Currency.

A CBDC is a digital version of a state’s fiat currency — like the U.S. dollar or the Euro — backed by a central bank. However, they are different from the likes of Bitcoin or Ethereum, as they are run on a private blockchain controlled by a government.

The work came as part of Phase 2 TechSprint of Project Rosalind, a joint initiative from the Bank for International Settlements (BIS) and the Bank of England, which taps private sector companies to develop real world use cases for CBDCs.

According to a statement by the BIS, the objective of the project “is to explore how this interface would best enable a central bank ledger to interact with private sector service providers to safely provision retail payments.”

According to the announcement, Nuggets worked with the Rosalind APIs in a sandbox environment to create a CBDC account.

The company then used CBDC to make retail payments with verifiable receipts, make a CBDC micropayment, and tested the ability to freeze, unfreeze and delete the CBDC account.

The TechSprint ran through March, and concluded with a demo day on April 5, when a selected group of participants presented the products they came up with to the international central banking community.

The BIS has previously noted that Project Rosalind “is purely experimental and does not reflect any intentions by the Bank of England on CBDC policy, design or launch.”

It’s not just Nuggets that was able to announce high profile collaborations with the UK public sector in recent days.

The Department for Science, Innovation and Technology has selected UK fintech NayaOne to deliver the UK Digital Identity Sandbox.

NayaOne provides a cloud-native fintech-as-a-Service platform which allows firms to connect to a myriad of other fintechs and data sets.

The collaboration will see NayaOne’s Sandbox solution used to collect evidence about how digital identity solutions could work in practice within a ‘live’ environment.

NayaOne will also work to build evidence for further policy development to support the digital identity market, and will explore how regulatory and other changes can remove blockers to the use of digital identity solutions.

The news came just a few months after NayaOne was selected by the UK’s Financial Conduct Authority to build and operate ‘Digital Sandbox,’ an initiative that enables companies to develop and test their products in a safe and secure environment, with support from the regulator.

US consumer protection bureau gives nod to digital ID

Regulators in the U.S. may be realizing the value of digital identity when it comes to fraud prevention.

These comments came during the semi-annual report of the Bureau of Consumer Financial Protection, where director Rohit Chopra answered questions from members of congress.

Bill Foster, a representative of Illinois’s 11th congressional district, highlighted the risks of generative AI being used to defraud consumers, for example how “voice cloning” is being used to trick people out of their money.

Foster touched on the idea of providing all citizens with “digital identity” to act as “digital proof” or identity as a way to combat these risks and help consumers.

In reply, Chopra said: “This identity verification issue, I think if we can solve that as a core part of infrastructure in our country, we could actually reduce a lot of fraud as well.

They adds that: “The benefits would be big also for market participants.”

“You can see in jurisdictions where they have implemented this digital layer they get a lot of benefit from it,” he explains.

However the regulator did not provide a great deal of detail about the actual implementation of these digital identities for U.S. citizens, saying “how you actually do so is the question.”

Chopra did acknowledge that: “People should at least know if they are talking to a human.”

Many welcomed the statement, with Jeremy Grant, the managing director of law firm Venables LLP saying it was “fascinating” that a banking regulator was addressing digital ID as an infrastructure issue in a Twitter post.

Article Topics

central bank digital currency (CBDC)  |  digital identity  |  digital wallets  |  Financial Conduct Authority (FCA)  |  financial services  |  fraud prevention  |  identity verification  |  NayaOne  |  Nuggets