Why do passkeys and passwordless authentication create new infrastructure decisions for regulated organisations?

Why This Matters for Security Teams

Passkeys and passwordless authentication are often framed as a user-experience upgrade, but for regulated organisations they are also an infrastructure decision. The authentication ceremony, attestation data, device binding, and audit trail may be created in different services, regions, or administrative domains than a legacy password stack. That affects retention, evidentiary quality, and where compliance teams can prove control over identity events.

This is why the control question is no longer just “Does it stop phishing?” It is also “Where does the identity proof live, who can administer it, and can the logs support audit and incident response?” NIST’s Cybersecurity Framework 2.0 and the Ultimate Guide to NHIs — Regulatory and Audit Perspectives both reinforce that identity controls must be traceable, not just functional.

NHIMG research shows how often identity controls fail when they are treated as secondary plumbing: 79% of organisations have experienced secrets leaks, and 80% of identity breaches involved compromised non-human identities such as service accounts and API keys. In practice, many security teams encounter infrastructure and audit gaps only after adoption has already moved ahead of governance.

How It Works in Practice

Implementing passkeys or passwordless authentication means deciding more than “which login method.” Security teams need to map the full path of identity data: registration, attestation, recovery, session creation, logging, and retention. For regulated environments, the most important decision is often where those events are processed and stored. If the authentication broker, cloud identity service, or audit pipeline operates outside the required jurisdiction, the organisation may inherit a compliance issue even if the authentication method itself is strong.

Operationally, the design usually includes three layers. First, the authenticator or platform must support the required assurance level and recovery model. Second, audit logs must be retained in a format that supports investigation and regulatory review. Third, the region or tenant boundary must align with data residency, key management, and administrative control expectations. The NIST SP 800-53 Rev. 5 Security and Privacy Controls is useful here because it makes clear that access control, audit, and system integrity are separate control families, not one feature.

• Confirm where authentication metadata is created and whether it is replicated across regions.
• Verify who can administer recovery flows, device enrollment, and policy exceptions.
• Retain logs with timestamps, actor attribution, and immutable storage where required.
• Test whether the provider supports your required jurisdiction without fallback to a non-compliant region.

NHIMG’s Ultimate Guide to NHIs — Lifecycle Processes for Managing NHIs is especially relevant because the same lifecycle discipline applies to passkey-adjacent identity artifacts: issuance, rotation, revocation, and offboarding all need clear ownership. These controls tend to break down when an organisation adopts a passwordless front end but leaves recovery, logging, and tenant administration anchored in a region that cannot satisfy the regulated data boundary.

Common Variations and Edge Cases

Tighter passwordless controls often increase operational overhead, requiring organisations to balance phishing resistance and user adoption against recovery complexity and compliance constraints. That tradeoff is especially visible in hybrid estates, where some applications support modern authentication while older systems still depend on passwords, legacy federation, or local accounts.

Best practice is evolving for cross-border operations, and there is no universal standard for this yet. Some organisations keep authentication in one region but replicate logs to another; others localise everything, including recovery and key services. The right model depends on whether the regulation focuses on data residency, administrative control, or evidentiary retention. This is where an internal control matrix matters more than a generic rollout plan.

Two common edge cases deserve attention. First, if workforce devices are shared, unmanaged, or frequently replaced, passkey recovery can become a weak link and may need step-up verification or PAM-style approval. Second, if identity proof is delegated to a third-party IdP, vendor residency and support boundaries can silently override local policy. The Top 10 NHI Issues illustrates a broader pattern: identity governance often fails at the seams between systems, not inside the primary login flow.

For that reason, regulated organisations should treat passwordless adoption as an architecture review, not a UX project, and validate every region, log path, and exception process before expansion.

Related resources from NHI Mgmt Group

• When does passwordless authentication create new governance risk?
• Why do non-human identities create more audit risk than human accounts?
• Why do non-human identities create audit risk in modern environments?
• Why do non-human identities create compliance risk even when policies exist?