Blog Cabinet Office consultation on digital identity: implications for financial services

The consultation was published on 10 March and runs until 5 May, after which the government plans to continue engagement through a public panel process before taking decisions on the future design of the system.

UK Finance is preparing a response on behalf of members and is gathering views across the financial services sector ahead of the deadline.

The consultation sets out proposals for a voluntary digital identity credential that individuals could use to prove who they are when accessing services online or in person. The credential would be stored primarily on a user's device, for example in a digital wallet, and would initially contain a small number of core attributes such as name, date of birth, photograph and nationality. The government emphasises that the system would allow selective disclosure, meaning users would only need to share the information required for a particular transaction rather than their full identity details.

The consultation is structured around three broad principles: usefulness, inclusivity and trust. It asks a series of design questions about how the credential should work, what information it should contain, and how it should be used across different parts of the economy. Although the primary focus is on public services, the document makes clear that the government expects the digital identity to be usable across both the public and private sectors, including in regulated industries.

The impact on financial services

For financial services, the consultation is relevant in several areas. It refers to the potential use of digital identity in onboarding, fraud prevention and secure access to online services, and highlights the need for strong interoperability with existing identity and verification processes. The document also notes that identity checks in the wider economy are likely to be carried out mainly by certified digital verification providers, rather than directly by government, but asks whether a government-run checking service should also be made available to organisations relying on the credential. This raises questions about how any new public service would interact with the existing market for digital verification and identity services.

The consultation also confirms that the proposed credential would be voluntary for individuals, with no requirement to hold or present a digital identity. At the same time, it explores potential use cases where digital identity could become the preferred or standard way to prove certain attributes, for example in employment checks such as right-to-work verification. The relationship between voluntary adoption and the effectiveness of the system is therefore an important issue for consideration.

Another area covered in the consultation is the interaction with the UK Digital Identity and Attributes Trust Framework, which already sets standards for certified identity and verification providers. The government indicates that any new digital identity solution would need to work alongside this framework, andseeks views on how public and private services should interoperate. This is particularly relevant for financial institutions, which already rely on established identity and customer due diligence processes and will need clarity on assurance levels, data quality and liability before relying on new credentials in regulated use cases.

The consultation also considers technical and operational questions, including how credentials will be stored, how identity data will be updated, and how organisations will know that the information they receive is accurate and up to date. These issues are closely linked to trust in the system and to the responsibilities of different parties when identity information is used across sectors.

What happens next

Overall, the proposals signal a significant step in the government's approach to digital identity and could have long-term implications for the way individuals access services and how firms verify customers. The consultation reflects an ambition to create a system that works across the whole economy, butalso highlights the need to balance public provision with existing private-sector solutions and to ensure that the design meets the requirements of regulated industries.

UK Finance is coordinating a response to the consultation, with input from members across financial inclusion, payments and innovation, economic crime, mortgages, and retail and commercial banking. Members who would like to share views or provide input into the response are invited to contact [email protected].