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Banks, tech companies, and governments should work together to enable the adoption of decentralized digital identities in Canada, argues a new white paper published by the Canadian Bankers Association (CBA) on Wednesday.

Canada’s Digital ID Future – A Federated Approach advocates for the development of digital IDs in Canada. An interconnected digital ID — created through co-operation between the private and public sectors, rather than large, centralized system — would save costs, reduce fraud, improve privacy and transparency for consumers, while enhancing regulatory compliance and online security, the paper argues.

“Canada has the opportunity to create an interconnected or ‘federated’ digital ID framework between government and private sector whereby a person’s electronic identity and attributes are stored across distinct but linked identity management systems,” it states. “Unlike a centralized identity framework that puts the control of identity under one key player, a federated identity system leverages multiple systems, eliminating reliance on a single service provider. In other words, there is no single point of control or failure that can compromise the entire system.”

The paper examines the development of digital IDs in countries such as Estonia and India and sets out the CBA’s recommendations for developing this sort of system in Canada.

“The federal government has taken an initial step by outlining key principles in its Inclusive Innovation Agenda, including the need to compete in a digital world and the imperative to make doing business easier,” it states, but further federal action is needed to address regulatory roadblocks that could hamper the adoption of digital IDs.

“The federal government must create a legal framework to enable the creation and usage of digital ID solutions under one national strategy by leveraging the capabilities of the private sector. Collaboration is crucial to enable Canada’s participation in a digital economy both domestically and abroad, spurring innovation and growth while creating a stronger and safer way to manage Canadians’ identity,” the paper states.

“A federated digital ID approach – one interconnected network – would transform the way Canadians identify themselves to government, businesses and each other, with ease and rock-solid security,” says Neil Parmenter, president and CEO of the CBA, in a statement. “We hope to kick start an important conversation between the private and public sectors to define a pathway to building a digital ID model that positions our country as a world leader in this increasingly important field.”