The requirement for mortgagees to verify the identity of mortgagors is nothing new. However, this does not necessarily mean that the process is well understood, particularly as it has continued to evolve in the context of the challenges presented by the COVID-19 pandemic.

This article provides a "refresher" on the purpose of and procedure for conducting verification of identity (VOI) and how this operates in the current landscape.

1 What is VOI?

The requirement to conduct VOI was initially mandated for the purposes of electronic conveyancing, however it has since been extended to paper transactions. All states and territories have adopted the Model Participation Rules (Model Participation Rules) developed by the Australian Registrars' National Electronic Conveyancing Council (ARNECC),with the exception of the Northern Territory and Tasmania.

In a financing scenario, the general obligation is for a mortgagee to take reasonable steps to verify the identity of the mortgagor and ensure that the mortgagor has the right to grant the mortgage. This can be done by either applying the VOI Standard set out in Schedule 8 of the Model Participation Rules (VOI Standard), or otherwise demonstrating the taking of "reasonable steps".

VOI is different to the 'Know Your Customer' checks which may be completed by a lender.

2 The VOI Standard

The VOI Standard is not mandatory but constitutes best practice and, where met, will mean that the mortgagee is deemed to have taken reasonable steps to verify the mortgagor's identity, thereby creating a "safe harbour" for the mortgagee.

The VOI Standard is largely the same across the jurisdictions that have adopted the Model Participation Rules - it requires the person verifying the identity of the mortgagor to:

  1. conduct a face-to-face interview with the mortgagor (being either the individual mortgagor, the signatories of a corporate mortgagor or an attorney under a power of attorney);
  • examine, and retain a copy of, the original identity documents for the mortgagor within the highest possible category prescribed in the VOI Standard; and
  • confirm the mortgagor bears a reasonable likeness to the person in the identification documents provided.

The highest category in the VOI Standard requires a passport and driver's licence to be provided (which may include an expired passport provided it was current within the preceding two years). If this category cannot be met, the next alternative in the waterfall should be used.

A mortgagee does not need to re-do VOI on a signatory where it has completed the VOI procedure within the previous two years, provided the mortgagee takes reasonable steps to ensure that the persons signing the mortgage are the same as the persons on whom the VOI was conducted. For example, this may be a call verifying the identity of the signatory and that they signed the mortgage.

3 Reasonable steps

Where it is not possible to apply the VOI Standard, a mortgagee may still comply with the requirement to verify the identity of the mortgagor by demonstrating that the mortgagee otherwise took "reasonable steps". However, this will not give the mortgagee the benefit of the "safe harbour" and the onus will be on the mortgagee to demonstrate that the steps it took were reasonable.

What is reasonable must be considered on a case by case basis and is a question of fact, dependant on the relevant circumstances. ARNECC has indicated that "reasonable steps" will be determined by reference to what an ordinarily prudent mortgagee would have taken in the circumstances in the ordinary course of his or her business. Generally, simply relying on KYC processes as "reasonable steps" approach for VOI should be avoided unless a lender has a specific policy and procedure which allows for it.

4 Remote VOI

Given the VOI Standard requires a face to face interview to be conducted with both persons physically present, completing VOI via a video conferencing method will not meet that standard.

That said, completing the verification of identity procedure remotely may still constitute "reasonable steps". ARNECC acknowledges that the use of the VOI standard is not compulsory and the use of video technology may be used in certain circumstances.

If the VOI is to be conducted via audio-visual technology, the person conducting the identification should ensure that they are using a reliable platform which enables them to clearly identify the mortgagor. Platforms are now on the market which can facilitate this, including measures to authenticate documentation and conduct facial recognition, and mortgagees should consider using these where possible.

5 Who can conduct a VOI and when is it done?

VOI can be conducted by the mortgagee itself, or an "identity agent" who must be reputable, competent and have the minimum level of insurance. Given these requirements, care should be taken in selecting an identity agent, which can include Australia Post, certain third party providers, and law firms that are registered to transact via an electronic lodgment network operator (e.g. PEXA, Sympli). A justice of the peace or commissioner of declarations does not usually meet the requirements.

If the person completing the VOI does not meet the requirements for an "identity agent", then the VOI will not meet the VOI Standard and the onus will be on the mortgagee to prove it took "reasonable steps" as above.

The preference is to conduct the VOI at the time the mortgage is executed. If not, the mortgagee will need to separately take steps (and retain appropriate evidence) to ensure that that person who signed the mortgage is the same as the person on whom the VOI was conducted.

6 Why is VOI required?

A failure to appropriately verify the identity of the mortgagor will not automatically invalidate a mortgage, however, ensuring that VOI is appropriately conducted will entitle the mortgagee to the benefit of a presumption in its favour as to the absence of fraud on the part of the mortgagor.

If it is demonstrated that the mortgage has been fraudulently executed and the mortgagee is not able to establish that VOI has occurred (either under the VOI Standard or through reasonable steps), then the mortgagee will not obtain indefeasible title and the relevant land titles registrar may cancel the mortgage registration.

7 Reminders for mortgagees

Mortgagees should ensure that, when arranging for execution of a mortgage, the mortgagor brings the necessary identification documents and attends either the mortgagee or an appropriate "identity agent" to allow the VOI Standard to be met.

If it is not possible to meet the VOI Standard, then the mortgagee will need to be satisfied that reasonable steps have been taken to verify the identity of the mortgagor. 

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.