Financial Inclusion 20: How RegTech, AI, and Digital Identity Are Reshaping the UK’s Economic Future + Video

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Introduction:

Financial exclusion remains one of the most persistent and overlooked challenges in modern economies, affecting millions who lack access to basic banking, credit, and insurance services. As Lord Holmes recently argued in the UK House of Lords, financial inclusion should not be viewed as a social issue or an add-on to core regulatory objectives—it is fundamentally an economic issue that supports entrepreneurship, workforce participation, and long-term growth. With the Financial Conduct Authority (FCA) celebrating a decade of innovation services that have supported nearly 1,000 firms and hosted 15 Tech and Policy Sprints on topics from financial inclusion to authorised push payment fraud, the intersection of technology, regulation, and inclusive finance has never been more critical.

Learning Objectives:

  • Understand the regulatory landscape surrounding financial inclusion in the UK, including the FCA’s innovation services and the push for a dedicated financial inclusion mandate
  • Master the technical implementation of modern KYC/AML processes using digital identity, consent-based data sharing, and perpetual KYC frameworks
  • Learn practical Linux and Windows security hardening commands to protect financial service infrastructure handling sensitive customer data
  1. The Financial Inclusion Mandate: Technology as the Great Equaliser

Lord Holmes’s amendments to the Financial Services and Markets Bill propose four critical pillars: a financial inclusion mandate for regulators, a dedicated innovation-focused unit within the FCA, smarter consent-based use of alternative data, and modernising outdated KYC/AML processes. The technology to achieve these goals already exists—from digital identity solutions like OneID®, which enables anyone with UK mobile or online banking to prove who they are online in seconds using bank-verified credentials, to regulatory sandboxes that have helped 25 firms develop proof-of-concepts using data related to fraud and open finance.

Step‑by‑step guide: Implementing Consent-Based Data Sharing

  1. Establish a consent management framework – Implement a system that captures explicit user consent before any data sharing occurs, with granular controls over what data is shared and with whom.
  2. Deploy OAuth 2.0 and OpenID Connect – Use these industry-standard protocols to enable secure, delegated access to financial data without sharing credentials.
  3. Implement data minimisation – Only request and store the minimum data necessary for the specific service being provided.
  4. Create audit trails – Log all consent grants, data access events, and data sharing transactions with tamper-evident timestamps.
  5. Enable consent revocation – Allow users to withdraw consent at any time, with automated data deletion workflows.

  6. Modernising KYC/AML: From Legacy Models to Perpetual KYC

Traditional KYC/AML cycles are becoming increasingly misaligned with real-time risk, especially as generative AI, fraud networks, and globally coordinated criminal ecosystems accelerate the sophistication of attacks. The solution lies in Perpetual KYC (pKYC), enabled through an integrated operating model that brings together data, automation, and analytics into a single, closed-loop system. The FCA has been explicit that good outcomes matter more than procedural excess, particularly where rigid KYC creates barriers to financial inclusion.

Step‑by‑step guide: Deploying a Perpetual KYC System

  1. Data modernisation – Create a unified, high-integrity data foundation that eliminates rekeying, reconciles identity attributes across systems, and ensures risk signals are accurate, connected, and explainable.
  2. Intelligent automation – Deploy event-driven KYC refresh mechanisms that trigger automatic re-verification when risk triggers are detected.
  3. Integrate Explainable AI (XAI) – Implement AI models that provide transparent, auditable decisions for compliance purposes.
  4. Connect to authoritative data sources – Link to UK banks, credit reference agencies, and fraud databases to meet JMLSG requirements for multiple data sources.
  5. Continuous monitoring – Set up real-time alerts for changes in customer risk profiles, using automated workflows to trigger appropriate reviews.

  6. Digital Identity Infrastructure: The Backbone of Financial Inclusion

Secure and reliable digital ID is a significant growth area of innovation and will be a key part of the infrastructure that allows truly Open Finance, with consumers able to share their data with third-party providers smoothly and securely. The FCA’s Digital Sandbox has supported digital ID models that help financially excluded people establish digital IDs based on alternative identity evidence, such as geolocation data or registration of trusted referees like charities. OneID® sources ID evidence data from multiple verified and authoritative data sources and is regulated by the FCA as an Identity Service Provider.

Step‑by‑step guide: Implementing Bank-Based Digital ID Verification

  1. Select a certified Identity Service Provider (IDSP) – Choose a provider certified under the UK’s Digital Attributes and Trust Framework (DIATF).
  2. Integrate the IDSP’s API – Implement the provider’s API to enable users to authenticate with their existing bank credentials.
  3. Implement attribute sharing – Configure the system to request only the specific verified attributes needed for the service (e.g., name, address, age verification).
  4. Establish consent history – Maintain a record of what data was shared, with whom, and when, giving users visibility and control.
  5. Test in a sandbox environment – Use the FCA’s Digital Sandbox to test your implementation in a controlled environment before full deployment.

4. Securing Financial Service Infrastructure: Linux Hardening Commands

Financial institutions handling sensitive customer data must implement robust security measures. Below are essential Linux commands for hardening financial service servers.

Step‑by‑step guide: Linux Security Baseline

1. Update and patch the system:

sudo apt update && sudo apt upgrade -y  Debian/Ubuntu
sudo yum update -y  RHEL/CentOS

2. Secure SSH access:

sudo nano /etc/ssh/sshd_config
 Set: PermitRootLogin no
 Set: PasswordAuthentication no
 Set: PubkeyAuthentication yes
 Set: AllowUsers [bash]
sudo systemctl restart sshd

3. Configure firewall rules:

sudo ufw default deny incoming
sudo ufw default allow outgoing
sudo ufw allow 22/tcp  SSH
sudo ufw allow 443/tcp  HTTPS
sudo ufw enable

4. Implement file integrity monitoring:

sudo apt install aide
sudo aideinit
sudo mv /var/lib/aide/aide.db.new /var/lib/aide/aide.db
sudo aide --check

5. Set up automated security audits:

sudo apt install lynis
sudo lynis audit system

5. Windows Security Commands for Financial Services

For Windows-based financial service infrastructure, the following commands are essential for maintaining security compliance.

Step‑by‑step guide: Windows Security Hardening

1. Audit system policies:

secedit /analyze /cfg %USERPROFILE%\Desktop\security_template.inf /log %USERPROFILE%\Desktop\security_analysis.log

2. View and manage firewall rules:

netsh advfirewall show allprofiles
netsh advfirewall set allprofiles state on

3. Check for open ports and connections:

netstat -ano | findstr LISTENING
netstat -ano | findstr ESTABLISHED

4. Manage user accounts and permissions:

net user
net localgroup administrators
wmic useraccount where "name='Administrator'" set PasswordExpires=True

5. Enable Windows Defender real-time protection:

powershell -command "Set-MpPreference -DisableRealtimeMonitoring $false"
powershell -command "Set-MpPreference -EnableNetworkProtection Enabled"

6. API Security for Financial Service Endpoints

With the rise of open finance and consent-based data sharing, API security is paramount. Financial institutions must secure their APIs against the growing threat of identity fraud, which comprised more than 118,000 cases of UK fraud in the first half of 2025, with generative AI used for deepfaking to bypass biometric checks.

Step‑by‑step guide: Securing Financial APIs

  1. Implement OAuth 2.0 with PKCE – Use Proof Key for Code Exchange to prevent authorisation code interception attacks.
  2. Deploy API rate limiting – Prevent brute-force attacks and denial-of-service attempts: 
    Using Nginx
limit_req_zone $binary_remote_addr zone=mylimit:10m rate=10r/s;
  3. Implement mutual TLS (mTLS) – Ensure both client and server authenticate each other using certificates.
  4. Encrypt sensitive data in transit – Use TLS 1.3 with strong cipher suites.
  5. Log and monitor all API access – Implement comprehensive logging with tamper-evident storage.
  6. Regular security testing – Conduct penetration testing and vulnerability assessments on all API endpoints.

7. Cloud Hardening for Financial Data Protection

As financial services migrate to the cloud, hardening cloud infrastructure becomes critical to prevent data exposure during digital transformation.

Step‑by‑step guide: Cloud Security Hardening

  1. Implement identity and access management (IAM) – Use least-privilege access principles and multi-factor authentication for all cloud resources.
  2. Encrypt data at rest – Enable encryption for all storage services (S3, Azure Blob, etc.) using customer-managed keys.
  3. Configure network security groups – Restrict inbound and outbound traffic to only necessary ports and IP ranges.
  4. Enable cloud-1ative security services – Use AWS GuardDuty, Azure Defender, or GCP Security Command Center for continuous threat detection.
  5. Implement backup and disaster recovery – Maintain encrypted, geographically distributed backups with regular restoration testing.
  6. Conduct regular compliance audits – Use tools like AWS Config, Azure Policy, or GCP Security Command Center to ensure ongoing compliance with financial regulations.

What Undercode Say:

  • Key Takeaway 1: Financial inclusion is not a social add-on but an economic imperative. The technology to transform access to financial services exists—from smarter data-sharing (like rental payment histories) to more effective and inclusive approaches to identity verification. The FCA’s decade of innovation services has demonstrated that regulatory sandboxes, TechSprints, and Digital Sandboxes can accelerate fintech innovation while maintaining consumer protection.

  • Key Takeaway 2: The modernisation of KYC/AML processes through Perpetual KYC and Explainable AI represents a paradigm shift from reactive, document-based compliance to proactive, data-driven risk management. This not only reduces friction for legitimate customers—particularly the financially excluded—but also strengthens defences against increasingly sophisticated financial crime, including AI-generated deepfakes that bypass traditional biometric checks.

Analysis: Lord Holmes’s push for a financial inclusion mandate reflects a growing recognition that regulatory frameworks must evolve to harness technology for public good. The FCA’s innovation services have already demonstrated that sandbox environments can reduce barriers to entry, with independent studies showing that sandbox firms are 50% more likely to raise funding than their peers. However, the challenge lies in scaling these innovations beyond pilot programmes. The proposed dedicated innovation-focused unit within the FCA could serve as a “powerhouse for innovation and research,” driving the adoption of digital identity, alternative data, and consent-based sharing at scale. The emergence of solutions like OneID® and Merit AI (mentioned by RefuAid’s COO) shows that the private sector is ready to deliver, but regulatory clarity and supportive policy frameworks remain essential. As Lord Holmes noted during the debate, financial inclusion enables people to have financial services and be financially included, which is likely to increase digital inclusion and social inclusion, as employees become self-employed and the employed become economically active. This is not just about banking—it is about unlocking human potential.

Prediction:

  • +1 The UK’s push for a financial inclusion mandate will catalyse a wave of RegTech innovation, with the FCA’s innovation services serving as a global model for other regulators. The Digital Sandbox and AI Live Testing services will enable firms to develop and test inclusive financial products at lower cost and reduced time-to-market.

  • +1 Perpetual KYC and Explainable AI will become industry standards within three to five years, driven by both regulatory pressure and competitive advantage. Financial institutions that adopt these technologies early will gain significant market share among underserved populations.

  • -1 The rise of AI-generated deepfakes and synthetic identities poses a growing threat to digital identity systems. Financial institutions must invest in advanced detection technologies and continuous monitoring to stay ahead of increasingly sophisticated fraud schemes.

  • -1 Without clear regulatory frameworks for consent-based data sharing and cross-border digital identity, the risk of fragmentation and interoperability issues could undermine the goal of financial inclusion. International cooperation, as seen through the Global Financial Innovation Network (GFIN) with over 90 organisations, will be essential to address these challenges.

  • +1 The integration of alternative data sources—such as rental payment histories, utility bills, and charity referrals—will significantly expand access to credit for the unbanked and underbanked. This data-driven approach, combined with AI-powered credit scoring, could unlock economic opportunities for millions while maintaining robust consumer protections.

▶️ Related Video (78% Match):

https://www.youtube.com/watch?v=2zkAZ-Ehilk

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