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KYC.LEGAL
 

Know thy neighbor

People have not always needed to formally verify each other’s identity – throughout human history, when people mostly stayed within their own communities, it was enough that other residents knew them. But the world is not static – over time, with advancements in science and technology, populations have grown beyond self-contained communities, and everyone has become increasingly mobile. As a result, other forms of identification became required for people to know who is passing through their territory. This is why passports and other forms of identification papers were introduced several hundred years ago. These documents were not unified, and each country issued (and still issues) them in its own fashion. But today, we live in an online world that is becoming progressively more complex– and in this new reality, methods of identification must be standardized and streamlined to be useful globally.
 
The issue of identity verification has gradually become an important and urgent problem. To be able to use certain services – especially financial services, which have always been the driver of major changes – a person’s identity needs to be properly, securely, and definitively verified. Existing systems are cumbersome and technologically outdated. For a regular person in this global digital world, the idea of taking the time to physically go to the bank to present her papers seems absurd – if we can connect with just about anyone in the world within seconds, broadcast our location within 10 feet, and stream live videos of incredible quality, surely there must be an easier and better way to confirm one’s identity.
 

The need for a better solution

Today, the requirement to verify a person’s identity is pervasive – wherever we go, we have to produce various IDs, passwords, tickets, etc. to prove that we are indeed who we claim to be. The frequent need to undergo this procedure results in wasted time, costs and problem-solving, and a lost bank PIN code can cost you dearly.
 
“People are quickly coming to realize that there is a need for systemic solutions, which should first of all work for them, saving time, money and energy,” says Sergei Bekrenev, Co-Founder of KYC.LEGAL, a project working on developing the right solution. “What needs to be done is clear: we need to create and implement a secure, universal, and user-friendly digital verification and authentication system, which will meet the needs of both users and service providers.”
 

How other people do it

Digitizing identification information and automating verification processes will allow all of us to dramatically improve the reliability, speed, and affordability of personal identification. Even the United Nations is advocating for the digitization of identifying information, including birth records, and urges national governments to digitize civil registration and vital statistics by 2030.
 
The concept of digital identification started to develop from two different sources –government-run initiatives and private systems. This division was not accidental: government-run digital ID systems perform primarily a utility function that meets the needs of the state, and its set of values for verification is quite different from the needs of businesses to verify personal information .
 
According to KYC.LEGAL Co-Founder Daniil Rausov, “There is still no consensus in the world concerning the solutions that would combine the benefits of government-run and private digital identification systems, and this is due to the differences between originally set goals. We proceeded from the assumption that it was possible to evaluate the best solutions developed by each of these branches and create something comprehensive and useful for all involved.”
 
State-run digital identification systems are being actively implemented all over the European Union: for instance, the United Kingdom is developing its National DNA database, Estonia is issuing electronic IDs bearing a person’s signature, and Italy is introducing new electronic biometric documents. The European Union ensures member states’ mutual acknowledgment of digital IDs via its eID system.
 
The U.S. is developing a unified digital ID system which is intended to combine all important information about residents and replace drivers’ licenses, social security numbers, etc. Russia uses the Unified system of Identification and Authentication. Accounts in this system may be considered a de facto digital passport identifying a user in electronic interactions with governmental agencies.
 
Also well known are business identification systems, such as Microsoft’s Windows Live ID and Apple ID which rely on fingerprint ID, while UBER uses facial recognition to verify its drivers.
 
India chose an interesting synergistic digital ID path. In 2009, the Indian government established a special authority, the UIDAI, which was tasked with introducing Aadhaar – a unique ID number for every resident of the country. Aadhaar has now become a fully functional digital means of identification widely used both for interacting with state authorities and in people’s daily lives. In its first year, Aadhaar saved the government over $1.5 billion just in fuel costs!
 
“The example of Aadhaar brilliantly illustrates the positive effects of introducing digital ID systems for business interests: $1.5 billion in added efficiency from using an electronic KYC system – and that’s just in microlending,” says David Drake, blockchain and fintech expert and President of Soho Loft Media Group.
 
One of the most impressive identification and verification scalability solutions introduced to date was presented by the team of KYC.LEGAL, which is developing an electronic KYC system based on a distributed ledger (blockchain) platform. Unlike their Indian colleagues, the project primarily focuses on the interaction between private users and agencies, although the system is well suited to be used in a much wider range of scenarios. The use of blockchain technology makes it extremely secure, reliable and user-friendly.
 

What does the law say?

Contemporary international law does not mandate a standard for state-of-the-art digital ID and civil registration technologies used by national governments or private companies. Neither does it define any special rights to digital identity. However, the law of multiple jurisdictions does protect each person’s personal data. Specifically, the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data signed on January 28, 1981 in Strasbourg requires member states “to secure in the territory of each Party for every individual, whatever his nationality or residence, respect for his rights and fundamental freedoms, and in particular his right to privacy, with regard to automatic processing of personal data relating to him.”
 
The European Court of Human Rights has noted that disputes concerning the names and last names of individuals are also subject to Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (ETS № 5) (Rome, November 04, 1950).
 
In contemporary law, the concept of personal data is defined broadly, and the term can mean any information on a defined or definable individual (“data subject”). In other words, any handling of data from the person’s digital profile without the owner’s express consent violates her rights. And if the owner consents to having her data handled as part of Big Data, the legal meaning of personal data protection gets completely lost.
 
“There is a clear inconsistency between the existing provisions of international, not even mentioning national, laws, and the current state of technological development and social relationships. There is no ultimate answer to this problem, as the issue is still being defined within the context of administration of law, from one complex case to the other,” says Vladimir Annikov, an innovative projects expert at the European Legal Service.
 

Where are we going?

In August 2016, experts comprising the International Economic Forum’s working group released a report titled “Blueprint of Digital Identity”, in which they indicated several potential e-KYC development models. In one of these, platforms developed by the business community which operate in accordance with certain rules and standards act as digital identification providers. Blockchain technology has now made the creation and operation of such platforms feasible.
 
In the nearest future, the market should expect certain standards to be established for the financial sector’s user interface platforms. We are seeing the World Bank already pursuing this development trajectory.
 
The example of India is a prime example of the beneficial convergence between private and state-run digital ID systems, which captivated the attention of numerous national governments. At this junction, it appears reasonable to expect other unification measures to follow.
 
In the near future, some experts predict we can expect to see the emergence of a verifiable “digital personhood,” the rights to which will belong to actual individual owning the identity. And it is possible to imagine that groups of collective users or even robots like the recently introduced Sophia may acquire their own distinct digital personhoods.
 
 

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