UK Government Moves to Boost AML Compliance Through Digital Identity Reforms

The UK government is preparing to unveil new guidance aimed at assisting financial institutions in the adoption of digital identity solutions for anti-money laundering (AML) compliance, signaling a significant shift toward technology-enabled regulation. The initiative, being developed jointly by HM Treasury and the Department for Science, Innovation and Technology (DSIT), follows a consultation response issued in July regarding proposed updates to the Money Laundering Regulations (MLRs).

This new effort builds upon the UK’s existing Digital Identity and Attributes Trust Framework (DIATF), which was placed on a statutory footing with the passage of the Data (Use and Access) Act 2025. The DIATF offers a structured methodology for verifying individual identities in a manner that complies with regulatory standards. Now, the framework is set to underpin a new suite of AML-focused standards that promise to streamline customer verification without sacrificing regulatory rigor.

A key component of the plan is the certification of digital identity providers. Under the updated framework, any provider offering digital identity services must be certified by bodies that are themselves accredited by the United Kingdom Accreditation Service (UKAS). These providers will face routine audits to ensure compliance and maintain integrity. For financial institutions, the use of certified digital ID providers is expected to make it easier to fulfill the risk-based approach to customer due diligence (CDD) mandated by the MLRs.

The forthcoming guidance also includes targeted regulatory adjustments. Notably, certain carve-outs from standard CDD obligations will be permitted to accelerate access to bank accounts for individuals affected by bank failures. These exemptions apply within the context of the Bank Insolvency Procedure as outlined under the Banking Act 2009. In addition, the new framework will bring greater precision to the application of enhanced due diligence (EDD), limiting mandatory EDD to transactions involving jurisdictions designated by the Financial Action Task Force (FATF) in its “Call for Action” list. This marks a shift away from requiring EDD for dealings with countries merely under “Increased Monitoring.”

Further evidence of the UK’s push for widespread digital identity adoption can be seen in Companies House’s April 2025 rollout of GOV.UK One Login, a service designed to streamline identity verification for business users. This move aligns with the government’s wider ambition to establish unified digital identity infrastructure across departments. According to projections included in the 2024 Financial Services Growth and Competitiveness Strategy, widespread digital identity adoption could generate as much as £4.3 billion in economic gains by the year 2034.

The initiative has drawn praise from key industry players. TechUK, a leading industry group, hailed digital identity as “a crucial component of the UK’s AML strategy,” adding that it holds “potential to improve compliance efficiency while enhancing user experience.” With digital onboarding and secure identity verification gaining traction in the banking sector, the guidance arrives at a time when technological innovation is reshaping how institutions manage risk and regulatory obligations.

In parallel with the digital ID initiative, the government is enhancing information-sharing capabilities within the regulatory ecosystem. New disclosure gateways will be introduced under MLR Regulations 52A and 52B, allowing the Financial Conduct Authority (FCA) to share confidential data with a wider array of entities—including crypto-asset firms. The expanded access is intended to improve collaboration across the financial sector and support the UK’s broader fintech innovation agenda, while reinforcing the country’s defenses against financial crime.

By fLEXI tEAM