UK: Clearer Rules Needed In The UK To Support Customer Authentication By Video, Says Expert

Last Updated: 4 July 2017
Article by Out-Law.com  

ANALYSIS: New rules are needed in the UK to make it clearer that it is acceptable for banks to verify the identity of new customers using video technology.

While video authentication is not prohibited by existing laws, laws on tackling money laundering, safeguarding data protection and on the supply of payment services do not give banks confidence on how to proceed with it in a compliant way.

Other countries in Europe have taken steps to support video authentication. This has led to technological solutions being implemented by some banks in the market. The onus is on UK policy makers and regulators to follow that lead.

An archaic approach to 'onboading' customers

The process of onboarding new customers at banks and other financial institutions in the UK is unfortunately both outdated and inconvenient. Verification of new customers requires a physical 'face-to-face' with a potential customer, along with their appropriate identity documents, in order to prove identity.

Considering the overwhelming movement of customers to online and mobile banking, it is disappointing that regulatory frictions have prevented the onboarding process from catching up and going digital.

This is particularly true when you consider that some of the more innovative solutions have already been accepted by some international regulators.

Following the international lead

Video authentication technology is already functional in countries such as Germany and the Netherlands, with many European countries having already regulated to allow for it.

Indeed, on 10 April this year, the German regulator BaFin (the Federal Financial Supervisory Authority) published a new circular on the requirements for the use of video identification procedures.

An example of video authentication in practice can be seen at the German online bank Fidor. It uses IDnow's identification solution to onboard customers remotely via video chat. New customers are simply required to: apply for a Fidor account online; install the app as directed, and; whilst on video chat, show themselves while holding their passport. It is not revolutionary technology but it is highly effective.

It is far from the only example: within three weeks of the Austrian Financial Market Authority (FMA) approving video authentication of new customers, it was being introduced in the financial services industry by banks such as Erste Bank, again using IDnow's solution.

What is clear is that European disruptors in the financial services markets are leading the way across the industry. However, the UK and UK retail banks lag behind.

What is the challenge?

In its response to the European Commission's public consultation on fintech, the European Banking Authority (EBA) acknowledged that existing anti-money laundering (AML) legislation has been acting as a roadblock to innovation.

In particular, the EBA highlighted the fourth Anti-Money Laundering Directive, or 4AMLD, as not being sufficiently prescriptive in relation to verification procedures. This means that different EU member states have the freedom to develop their own legislation in relation to AML standards, provided it meets the relatively lenient minimum requirements of 4AMLD.

PSD2 and the emphasis on 'strong customer authentication'

One of the central roadblocks to introducing video authentication in the UK is the lack of clarity in the legislation, both existing and incoming.

The second Payment Services Directive (PSD2), which the UK will have to implement into national law by 13 January 2018, does not explicitly permit or ban the use of video authentication, but it does accept the concept that something inherent to an individual can be used to help verify their identity – this is a big step towards accepting a person's face can serve as a means of authentication of identity.

However, the onerous security and authentication requirements of PSD2 require the financial services industry to push the boundaries of identification technology.

Under PSD2, authentication is characterised as a procedure "which allows a payment service provider to verify the identity of a payment service user or the validity of the use of a specific payment instrument, including the use of the user's personalised security credentials".

However, under certain circumstances it is necessary for payment service providers to undertake strong customer authentication, which relies on multi-factor authentication. This is described as "authentication based on the use of two or more independent elements, the reliability of each element not being compromised by the breach of any other element, and designed in such a way as to protect the confidentiality of the authentication data".

The 'elements' that can be combined to verify identify are categorised as something known only by the payment service user (knowledge); something held only by the payment service user (possession); something inherent to the payment service user (inherence).

In the context of video authentication, it is not a stretch to imagine that an individual's face is something inherent to them. However, this is only one step of the strong customer authentication process – 'knowledge' and/or 'possession' are still outstanding.

If a customer is holding up their passport across video chat, is that sufficient to meeting the possession requirement? Or if they read out their PIN, would that satisfy 'knowledge'? It is unclear.

PSD2 requires that strong customer authentication is undertaken when a customer accesses their online account or initiates a payment. It does not appear to consider onboarding of customers, which may be an oversight or it may have been intentionally omitted. Irrespective of the why, the requirements for video authentication are not found in PSD2.

Video authentication and 'enhanced due diligence'

With PSD2 itself unable to provide sufficient clarity, the Joint Money Laundering Steering Group (JMLSG) is slightly more prescriptive when it comes to remote onboarding of customers. It has recognised the potential for onboarding customers via non-"face-to-face" channels.

One of the core obligations on financial services firms is that they must apply "enhanced due diligence" when the customer is not physically present during the identification process. The JMLSG has also acknowledged that an individual's physical appearance is one of the many aspects of their identity.

All of this suggests that the JMLSG may be laying the groundwork for AML legislation that allows for video authentication. However, it goes on to state that whilst the amount of identity information to ask for is at the discretion of the firm, the customer not being physically present is identified as one of the risk factors that should be considered to protect against impersonation.

There is a sense that the JMLSG understands the potential for video authentication, but is not yet satisfied that it reasonably safeguards the interests of the customer or of the firm.

Data protection is another potential roadblock

Under the incoming General Data Protection Regulation (GDPR), "personal data resulting from specific technical processing relating to the physical ... characteristics of a natural person, which allow or confirm the unique identification of that natural person" is considered to be biometric data. It specifically includes facial images.

An individual's face being seen over video chat to confirm identity would fall within this description.

The relevance of this is that biometric data is considered a special category of data under the GDPR. The processing of this type of data is prohibited unless one of the exceptions listed in Article 9 of the GDPR is met. Failure to satisfy one of those exceptions would mean that the processing of the biometric data is in breach of the GDPR.

In practice, a robust and specific consent to processing of facial images should be sought from customers, ideally on downloading the app to enable the video authentication to take place.

The future of video authentication and facial recognition technologies

The video authentication tools being used by banks at the moment make use of video chat, meaning that they are not an entirely digital or automated authentication processes. There is still a requirement for a human to see another human with their identification documents, in real time, albeit remotely.

A question remains, therefore, about what will happen once facial recognition software is a globally accepted solution.

The Chinese company Face++ has developed sophisticated facial recognition software which, teamed with Alipay, a mobile payment app with over 450 million users worldwide, makes it possible to transfer money using facial recognition alone.

In the context of making payments, there is no reason why facial recognition should not meet the requirements for 'inherence'. However, there is still a question over how the second part of multi-factor authentication, as provided for under PSD2, of either knowledge or possession, can be met.

Would it be sufficient for the app to be on a mobile device registered on the app as belonging to the individual? Would that limit the use of effective facial authentication to a single channel, with customers still being required to enter a pin to withdraw money at ATMs? Moreover, this would not solve the problem of customers having to physically enter their banks as part of customer onboarding.

There is a balance between testing the boundaries of what is possible technologically, and what is reasonable for consumers on a practical level. Innovation requires a healthy appetite for risk, but when it comes to keeping your customers happy, consistency is often king.

More clarity needed

It is evident from the language of the current and incoming legislation that video authentication is intended to feature in payment technology. The inclusion of biometric data in the GDPR, including specifically facial recognition, illustrates that is it being recognised as a technological solution to the identification of individuals.

However, what is needed in order to be able to progress this solution is further clarity from the legislation, particularly with some national regulators steadfastly against video identification, creating an unbalanced international playing field.

Luke Scanlon is an expert in financial technology law at Pinsent Masons, the law firm behind Out-Law.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.