Let’s talk about digital identity with Amit Sharma, Founder and CEO at FinClusive.

In episode 51, Amit discusses how to address financial inclusion for individuals and organisations – and how identity can both prohibit and enable this. He explores the solutions that are available to facilitate secure Know Your Customer (KYC) and Know Your Business (KYB) processes whilst enabling economic empowerment globally – such as the Legal Entity Identifier (LEI).

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“Legal entity digital identities are equally as important as the individual identities because they form the gateway to be able to access essential and critical financial services.”

Amit Sharma headshotAmit Sharma has engaged in a myriad of roles that intersect financial markets, risk management, regulatory compliance, and international development. He is the Founder and CEO of FinClusive, a hybrid FinTech and RegTech company dedicated to financial inclusion. FinClusive serves the growing fintech, virtual asset/crypto and other non-bank/alternative financial services sector by providing them the ability to establish insured accounts for themselves and their clients through its growing U.S. based bank partners and conduct cross border transactions over crypto/blockchain and traditional bank payment rails—with an embedded full-stack global-standard financial crimes compliance (FCC) platform. Prior to FinClusive, Amit worked in both the public and private sectors, including with Empowerment Capital, Mitsubishi UFJ, and at the US Treasury Department, first at the inception of the Office of Terrorism and Financial Intelligence (TFI), and later as COS to the Deputy Secretary and Advisor to Treasury’s senior team under Secretary Henry Paulson.

Connect with Amit on Twitter @ASharma_VT and on LinkedIn.

Find out more about FinClusive at finclusive.com.

FinClusive is a Ubisecure/RapidLEI partner. Read more about the partnership in our press release: www.ubisecure.com/news-events/finclusive-validation-agent-gleis/

We’ll be continuing this conversation on Twitter using #LTADI – join us @ubisecure!

­Go to our YouTube to watch the video transcript for this episode.

Let's Talk About Digital Identity
Let's Talk About Digital Identity

The podcast connecting identity and business. Each episode features an in-depth conversation with an identity management leader, focusing on industry hot topics and stories. Join Oscar Santolalla and his special guests as they discuss what’s current and what’s next for digital identity. Produced by Ubisecure.


Podcast transcript

Let’s Talk About Digital Identity, the podcast connecting identity and business. I am your host, Oscar Santolalla.

Oscar Santolalla: Hello, and thanks for joining. Today, we talk about the role of identity in financial inclusion. And for that our special guest is Amit Sharma. He has engaged in a myriad of roles that intersect financial markets, risk management, regulatory compliance, and international development. He is the Founder and CEO of FinClusive, a hybrid financial technology and regulatory technology FinTech, RegTech company dedicated to financial inclusion.

Prior to FinClusive, Amit worked on both the public and the private sectors, including the empowerment capital, Mitsubishi UFJ, and at the US Treasury Department first, at the inception of the Office of Terrorism and Financial Intelligence, TFI, and later as a Chief of Staff to the Deputy Secretary and advisor to Treasury’s Senior Team Under Secretary Henry Paulson.

Hello, Amit.

Amit Sharma: Hello, how are you today?

Oscar: Very good. It’s a pleasure talking with you, Amit.

Amit: It’s great to be here. Thank you for having me.

Oscar: Great. So Amit, let’s talk about digital identity. And of course, the first thing we want to hear from our guests is the journey. Please tell us your journey to this world of digital identity and also FinTech.

Amit: Sure. Thank you for that. You listed a little bit on the intro of my bio. I have had the good fortune of being in the development sector. I was a Peace Corps volunteer in Asia. I did development work in Asia as well as in South America. After the tragic events of September 2001, I had the opportunity to join the US Treasury Department, at the time at the inception of what became really a third of the department’s efforts to combat illicit finance, both the US and the global anti-money laundering financial crimes compliance space.

We were looking at ways to understand financial movements to go after bad guys, terrorists’ financiers, drug traffickers, organised criminals, understanding how they move money in the financial system. And secondly, trying to create defensive mechanisms so that banks, nonbank financial institutions can protect themselves and their customers from that exploitation. So, many rules and regulations were formed during that time.

I had the good fortune of then moving up to what’s called the front office and working with the senior team at the Treasury Department, really in the early phases of the financial and credit crisis in 2008, and working with international governments, as we thought through how to stem that crisis, and really the broader risks in that vein.

After four or five years at the Treasury Department, I realised as a financial regulator I wanted to get into the belly of the beast and into the global banking space, really understand it from the ground up, and I joined a global bank called Mitsubishi, Mitsubishi UFJ Securities. I was working with the heads of the global markets group, I ran the New Products division, and really saw first-hand how global banking on the commercial investment banking side really depended on a lot of outdated technology and policies and procedures. And it was really during that time that we started to see the early technology innovations a la FinTech in payments and credit, in lending, in products, in services, but also in risk and compliance – regulatory technology.

And as institutions started to think about how to innovate and become more modern in their technology stack, it really provided an opportunity to see where and how financial services could be brought to the masses. And it was around that time, toward the end of my time at Mitsubishi, where I joined a group of senior financial regulators, bankers, technologists. And we did a study under the Center for Global Development around de-risking and basically found that anti-money laundering and regulatory compliance growth over the course of many years really forced many financial institutions to make a false and binary choice in that they looked at certain segments of the economy: low-moderate income, global remittances, non-profit work, international correspondent banking, and how many traditional financial institutions basically said – as regulatory compliance measures grow, they were forced with this choice to include several of these segments of our economy or exclude them because either they were too high a perceived compliance risk, or unprofitable, or both, and they began to de-risk. And that was never the intention of the growth in financial regulatory compliance. Instead, we had to focus on financial inclusion.

And this was really the inception of FinClusive and why we founded FinClusive. Number one, the growth of more disruptive, alternative financial services products that are being brought to the marketplace, a la FinTech companies, and decentralised applications, virtual assets service providers, those in the crypto space, providing solutions that really brought financial access to products and services to that last mile, to low-moderate income, the globally underbanked, unbanked, but really small businesses and non-profits and others, including FinTech companies and crypto companies themselves being viewed by traditional banking as high compliance risk.

So we set out to solve that by doing two things. One, really modernising regulatory compliance because it had grown into its own sector and the average institution, whether you’re a small credit union, or a global FinTech, or a large multinational bank, we’re spending upwards of 25-30 plus percent of their operating budget on compliance. And we knew we could modernise that but change the ethos of compliance from a more exclusionary tack to a much more inclusionary tack. We didn’t have to have that false binary choice of either including those segments of the economy versus financial system integrity. We could actually create security, system integrity, consumer protection, as well as engage more segments of the economy that had been excluded or marginalised from financial services. And digital identity is central to that.

When we look at the billion people or more on the planet that are not born with an official identity, how do they access financial services? And highly regulated industries, like financial services, like healthcare, and others, require the ability to verify and validate those individuals, what we call traditional ‘Know Your Customer’? And so we set out to solve that broader challenge by streamlining and modernising compliance and partnering with institutions by enabling FinTech applications and regulatory technology applications to really drive a more inclusive economy. And by bringing more modern digital identity solutions to both individuals and businesses, we could provide greater access and provide the essential privacy protections, consumer protections in tandem. And that’s really what FinClusive is all about. In some ways, we’re trying to rectify a bit of the overreach from a regulatory compliance perspective that we had initiated, and really go to the intent, which is a safe and accessible and inclusive economy for all. That’s the core of FinClusive.

Oscar: Yeah, it’s a super interesting journey you have had, of course, from public sector, private sector. And now today, you are in the entrepreneur side, with a super important mission about financial inclusion with FinClusive, and you already started illustrating what you are doing. If we go to a broader idea about what is this role? We’re talking about this role of digital identity in financial inclusion. You mentioned already 1 billion people without IDs, it’s actually I think you are the second guests in this podcast who mentioned that, and it strikes me every time I hear that number. It’s really unbelievable. Please tell us about what is the role of digital entity in financial inclusion first of all, for the individuals.

Amit: Sure. On the individual side, absolutely, 1 billion people that don’t have just legitimate identity. But beyond that, many jurisdictions, many countries continue to rely on quite antiquated paper-based forms of identity, hardcopy forms of identity. And as the broader community, and I mean globally, increasingly is digitising, the digitisation of our economy, we buy more of our products and services, basic everyday needs, groceries, to paying our utility bill, to accessing education and even health services and the like online.

And so we need to be able to create an environment where digital forms of identity can be verified and validated. And that has been challenging, you know, the broader identity fraud landscape is pretty high. And in fact, within the financial services space, the US Federal Reserve has reported that synthetic identity fraud, in other words, fake names associated with real individual identity numbers, like personal passports and driver’s licenses and social security numbers and that like, that’s costing US financial institutions alone, over 6 billion annually. It’s one of the largest growing types of financial crime in the US and globally, certainly.

And so, it’s not just the 1 billion that don’t have a specific form of identity. It’s really the number of folks that do have those identity stores and you have two parts of this challenge. One, the exploitation of otherwise less secure, more antiquated forms of identity. And secondly, the digitisation of our broader economy that requires that we have digital forms of identity that both allow us to verify and validate someone is who they say they are. But then we can also ensure that when we engage in services like finance, we are in fact, knowing our customer, KYC, which is a central part of the broader regulatory compliance ambit.

All of the anti-money laundering requirements for banks, non-bank financial institutions, and now the growing FinTech sector, the growing crypto sector, they are obligated to know who they’re dealing with. So KYC and KYB is central to the engagement of those sectors, of those parts of the economy, of those individuals and households that struggle to obtain and maintain that access.

And so, this problem set extends well beyond the 1 billion people to the number of folks that have IDs that really need to be able to both protect essential privacy controls, make sure that they are not also subject to fraud, manipulation and abuse. And importantly, ensure that financial services providers, at least that’s the domain that we look at, that personal identity is also in tandem with the protection of that personal identifying information.

The good news is that today, we have greater technology capabilities today to enable both privacy protections, as well as access through verification and validation without that compromise. Now, what we need to do is ensure that the regulatory and legal frameworks that enable these digital identity solutions to also take hold. And these will have tremendous applications the world over from refugee crises that we are seeing growing over time in places like Latin America, Africa, Asia. We’re seeing this unfold in front of our eyes in places like Afghanistan, with the crisis there as well.

So whether it’s a disaster recovery, or humanitarian-related issue, or a political-related issue, corruption-related issues, these issues around digital identity as a solution to allow us to verify and validate, know who our customers and our beneficiaries are, so that we can provide access, but also engage in providing tools and services that truly financially empower those individuals. So it’s a far-reaching problem but we have greater technology today to help solve that problem than we had before.

Oscar: Yeah, indeed. And it’s great to hear that the technology is here and is being used, and soon is going to be used more in services. Now, turning into the organisations, entities, companies, tell us the other side of this financial inclusion, but for the organisations.

Amit: Absolutely. I’m glad that you’re drawing that distinction. And you heard me reference KYB, Know Your Business. Know Your Customers, individuals, is absolutely very important. What folks sometimes tend to forget is that when we look at financial inclusion, we tend to focus on the two-and-a-half to three-and-a-half billion people and largely low-moderate income, like the global poor, as lacking access or sustainable access to financial services. But that is just scratching the layer.

When we really think about the access channels that really provide financial empowerment, we have to look at businesses, legal entities as well. Many small and medium enterprises equally struggle to engage in lending, in credit and other forms of basic financial services to grow their businesses. And this is hugely debilitating, because if you think about approximately 90 plus percent of global businesses are small and medium enterprises – 90 plus percent.

In the United States, note that in one of the richest countries in the world, 99% of all US companies are categorised as small businesses. And many of these organisations are 1, 2, 3 person entities that rely on personal credit history, personal background checks, personal financial history that enables them to access financing. And so, this is the engine of job creation in the world is small business. We have to be able to enable those organisations to access essential financial services and products to grow those businesses and thrive. So it’s a huge economic empowerment challenge in this regard.

Now, other legal entities are equally challenged. Non-profits and NGOs, non-governmental organisations, that are responsible for the support of many, many, many worthy humanitarian and other activities that either governments or the private sector have not been able to fill. Those NGOs and NPOs have been categorised by many financial services companies, traditional banks, as high compliance risk. And quite frankly, global regulators, the US included, have historically categorised these organisations as potentially exploitative for terrorist financing and money laundering.

And when you say this out into the general public, of course it puts traditional banks, who are highly regulated, under the scrutiny of these regulators to say, “Look, I don’t want to have undue scrutiny. I’d rather not do business with them at all.” And so, legal entity verification and validation, from small businesses to non-profits to even global corporate is hugely, hugely challenging. Global corporates, even with multiple what we call beneficial owners, multiple significant parties that control that organisation, there are now obligations for a financial services company to ensure that they not only know and validate the legitimacy of the organisation itself, its status and certification as a corporate entity or a small business or LLC.

Also, if they’re a money service business, are they appropriately registered? If they’re a FinTech company or a virtual asset service provider, do they have the appropriate licenses? Have we done the background checks of the owners of that company because they have a fiduciary responsibility? And unfortunately, legal entities themselves have been created to exploit financial services and systems, right, for these money laundering and other illicit activities. So, legal entity verification that leads to Know Your Business, KYB, is long overdue for a modernisation as well.

This is where we get excited about the good work that the Global Legal Entity Identifier Foundation is doing. We have, as you know, partnered with Ubisecure and RapidLEI and GLEIF to be an issuer and Validation Agent of Legal Entity Identifiers, backed by that compliance data so that financial services all over the world can understand the legitimacy of these organisations and engage them to provide essential products and services.

Furthermore, as we go to an increasingly peer-to-peer financial services environment, where merchants and individuals are engaged together, where businesses are engaged directly with each other without a specific financial intermediary, reinforcing the legitimacy to each other is hugely important. And so therefore, the KYB scenarios that require digital applications for legal entity verification and validation are immensely important. And it’s a massive pain point for financial services all over the world. And both addressing the exploitation and security issues, as well as the inclusion issues for businesses themselves, will go a long way to drive ultimate economic empowerment, especially as I said earlier, that is the true engine of economic growth all over the world.

Oscar: Yeah. And also one of the stats you mentioned, the 99% of the companies in the US is small business.

Amit: That’s right. And that’s the engine, right. The job creators aren’t the big multinational companies. The job creators are small businesses, entrepreneurs that are starting their businesses and local shops, whether they be tech-enabled, non-tech, they have to have a form of legitimacy, and it’s often on the back of one or two or three individuals to be able to create.

And so, legal entity verification, legal entity digital identities, are equally as important as the individual identities because they form the gateway to be able to access essential and critical financial services. It’s a larger challenge. And so when we think about financial inclusion, we tend to only think about the unbanked or traditionally poor, low-moderate income. And really the challenge is much more wide reaching when you consider legal entities like non-profits, small businesses and others.

Oscar: Yeah, you have illustrated pretty well the problem in the individuals and in the organisations and how they’re very linked to each other. No surprise, of course. Please tell us now how, in particular, your company FinClusive is solving these problems.

Amit: So FinClusive, as you pointed out in the beginning, we’re a technology company. We look at the rapidly evolving financial services landscape, and we see some challenges, but we see them as tremendous opportunities to drive financial inclusion. There’s a growth in more decentralised alternative financial services providers out there. The growth in financial products and services is not really happening in the traditional banking sector. It’s happening in the financial technology sector, the nonbank financial institutions like crypto or virtual asset service providers, peer-to-peer applications, blockchain-enabled networks that allow individuals, households, businesses to send value via tokens or cryptographic means to each other without any intermediary involved. These have tremendously huge opportunities to drive inclusion.

Now, as that happens, the need to address the essential KYC and KYB elements are incredibly important. And so, we have built our technology to enable FinTech companies, money service businesses, crypto companies to effectively partner with banking institutions, because at the end of the day, if you want access to insured deposits, you have to touch a bank. If you want access to what at least is today and for the near term, the largest payment rails on the planet, wires and SWIFT transactions and the like. You need to be able to engage with the bank.

And so, that’s the core service that we provide. We provide that linkage between the crypto and alternative value transfer and payment spaces with the traditional payment spaces and traditional banking. Now we do that with a foundational compliance as a service platform, which effectively brings a number of best-in-class services for the anti-money laundering and regulatory compliance requirements that financial services of all types must comport with. And it has often been very piecemeal, you have one provider for Know Your Customer, another provider for document management and verification, another provider for sanction screening and background checks, another provider for reporting.

What we do is bring many of those capabilities in one workflow, one full stack approach that is fully API enabled so it can be plug and play to a FinTech company in Latin America, a crypto exchange in Asia, a money service business in Africa, a non-profit or crowd funding platform in Europe, or even the most traditional bank. And so, by creating that as a foundation, we believe that Compliance-as-a-Service and compliance itself can be and is critical infrastructure.

This is where the incorporation of modernised identity management systems is hugely important. So we have, like I said, partnered with Ubisecure and RapidLEI. We’re excited about the partnership. We’re a Validation Agent and issuer that can provide Legal Entity Identifiers that are backed by full compliance data. Every individual that comes to our platform and is KYC checked is given a unique digital credential backed by their compliance data. And what that does is it protects their underlying personal identifying information, but allows the verification and validation of the requisite checks so that organisations of all types so that financial institutions and intermediaries that are engaging with each other, whether it’s peer-to-peer, or via a central intermediary, can do that verification and validation very fast, efficiently and cheaply.

With the LEIs, we can go even further and provide the engagement for organisations to have a legitimacy of their legal enterprise when interacting with each other. It legitimises them interacting with each other, which in an increasingly peer-to-peer world is hugely important for security and trust. And we create these enablers of trust by the implementation of the LEIs for small businesses, non-profits that are engaging many organisations for financial services and products, whether it’s payments or accounts or otherwise lending and credit products and the like, we bring that sense of legitimacy and efficiency.

The other piece of this that is so strong and powerful is that it brings a standardisation, a common set of standards help bring common understanding, both between those organisations that need that legitimacy, and it reinforces the commercial and personal engagements, especially when we are interacting in a financial or economic money transfer way – that requires trust. So LEI is truly help enable the trust between those counterparties and enable the verification, validation and security elements when multiple financial services providers are engaged, where they can say “Yes, I can verify and validate that that organisation is completely legitimate, that the compliance elements, the Know Your Business and Know Your Customer elements are verified, and that my extension of products and services are now going to – number one, the intended parties, but number two are going securely to those that had been verified and validated.”

So that’s how we have incorporated the Validation Agent program. We’re excited about the ongoing modernisation of verified Legal Entity Identifiers as well, where we can provide those digital credentials so that organisations of all types can engage with the global financial services economy, wherever located in ways that are both secure, and verifying for their own engagement between each other. That’s what’s exciting.

Oscar: Yeah, it sounds really exciting. And again, in one of the explanations you just gave that let’s say one of your customers, one FinTech, one organisation that wants to have the checks, they have so many different checks, given by different providers, traditionally some of them might be even manual so it’s, of course, the value proposition that you are offering now, sounds super solid. And plus, the addition of the LEIs in this workflow sounds super solid in what we need.

Amit: Well, absolutely. And I’ll say the excitement about this is that this is a long time coming. And I think now we have the technology to enable this environment in ways that we didn’t 5, 10 plus years ago. Remember that highly regulated industries are bound by the laws that the particular regulator must provide. And when doing so, we need to remember that highly regulated industries like financial services, like healthcare, like education, are bound by laws in that jurisdiction and identity management is equally the same for financial services KYC, KYB. And so the rules governing US institutions may differ from rules governing European institutions, African institutions, LatAm, their individual countries in those continents have different rules.

So standardisation is very important in a now modernised and globally connected world. Today, I don’t have to technically go through any intermediary and I can send money from me to you in Europe, peer-to-peer. So what specific regulation are we covered by is it the US, is it the Euro zone? We have to have a common set of standards. The proponents of the LEIs really believe in that common and standardisation. That’s what’s exciting about this. And the technology now, with verified LEIs, with Validation Agents that can issue and validate the Legal Entity Identifiers themselves. And from our standpoint, be able to back that by the underlying compliance data, the data checks, the background checks, the monitoring, so that we can protect the system from abuse, that’s critical. And now we can put them together.

And so, that common set of standards should be purported worldwide. And as we do that, we create that sort of trust economy, using the technology today to both protect the privacy elements of the individuals and entities, while also being able to create a trust framework to verify and validate that who we are dealing with is exactly who we intend to deal with. And that should span every jurisdiction because we do not live in a country-defined world now. We live in a global community,

Oscar: Exactly. Very unified world we live, definitely. Thanks a lot for explaining all these challenges and how you are solving this problem. I would like to close this with a final question. For all business leaders that are listening to us right now, what is the one actionable idea that they should write down on their agendas today?

Amit: That’s a great question. I’ll go back to sort of the beginning where you asked me a little bit about my background. Like I said, I’ve had the real opportunity and blessing to have worked in government, worked in the private sector, in banking, and otherwise. I have had the opportunity to work in the development and NGO sector. And all of those sectors play an important role to driving sustainable development and growth in our economy globally.

Often, we tend to look at these other sectors antagonistically. If we’re in the private sector, we look at regulators and policymakers as hinderances to our ability to grow. When we’re a regulator or a policymaker, we look at the innovation that happens in the private sector. And we say, “Wait a second, we need to put some constraints and rules to ensure that that innovation does not lead to exploitation of individuals and entities.” And then we look at the NGO sector providing essential services where private sector solutions and government solutions are not filling that void.

All of them matter. We must take an ecosystem approach of diverse experience and expertise to move the needle. Driving real impact commercially, economically requires that we bring all of those assets to bear to provide solutions for the global economy. And so that means we have to put aside this antagonism between sectors and really embrace that diversity of experience and expertise, because all of them are required to find collaborative solutions to drive real impact and changes in our broader society and our economy.

When we can do that, we really embrace inclusivity, not only to address safety and security issues. They are just not binary choices. We can drive inclusivity, as well as safety and security in tandem. And the only way to do that is that we embrace an ecosystem approach through our individual companies. We will not be the only provider of a solution. We must work with each other to provide those solutions that will be scalable, and sustainable.

So if there’s any lasting comment I would make, I would just say that when it comes to the diversity of your internal teams, to just even the engagement of partners and counterparts, is to look at the whole segment of our economy, from the NGO and development sector, to the government and public sector to the private sector and the innovation that happens there. All of those required to move together to really shape change.

Oscar: Yeah, I couldn’t agree more. Thanks a lot Amit for this conversation. Please tell us how people can be in touch with you or follow you if they would like to hear more.

Amit: Fantastic. I invite any and all that want to contribute to this broader mission. We certainly are trying to do so. We are working with a number of organisations to create best practices in a framework for global finance in this alternative and sort of decentralising economy. It’s called The Rulebook. We have more on those frameworks as well as our products and services and our partners at our website – finclusive.com.

You can also connect with us via email, just writing in [email protected] or [email protected] to learn more. And then we also have on the social media side, LinkedIn and Twitter that we’re quite active @FinClusiveCap. So please reach out to us on any one of those channels and we would love to connect and see how we can collaborate to advance these common objectives.

Oscar: Thanks a lot Amit and all the best.

Amit: Thank you so much Oscar, really appreciated being here today with you.

Thanks for listening to this episode of Let’s Talk About Digital Identity produced by Ubisecure. Stay up to date with episodes at ubisecure.com/podcast or join us on Twitter @ubisecure and use the #LTADI. Until next time.