Know your customer
The current state of authentication and validation

At one time, the paper utility bill was a standard means of customer identification, for example when opening a bank account.

However, organisations and consumers have turned their backs on paper bills, largely as a result of the fear of forgery, fraud and identity theft. This was confirmed in a recent FT article, which stated that the forging of paper IDs is prompting companies to turn to electronic means of identification.

Some salient facts:

• 70% of consumers recognise that forging paper documents has become easier
• 30% of financial service companies, 64% of retailers and 60% of telecoms providers do not use paper documentation for identification
• Cases of identity theft and fraud for January-June 2007 stood at 40,000 (the first time they had levelled out)

Further, utility bills – paper or otherwise – do not feature at all in the Financial Services Authority guidelines for proof of identity*.

OneVu’s standpoint

As a major player in the dematerialisation of the UK’s utility bills, OneVu is often asked, “How will organisations authenticate the customer’s identity, particularly the physical address, without the paper bill?”

This is pertinent, given that fewer documents of all kinds are increasingly becoming available on paper.

Our view is two-fold, and accords with Robert Schifreen, a prominent IT security opinion-former and author of ‘Defeating the Hacker’:

• Bills contain appropriate information to authenticate and validate a customer’s identity and address
• The implementation and strength of identity are more important than whether the bill is paper or electronic

Many organisations would accept an electronic bill as an alternative means of identification. There is therefore a strong case for offering consumers a mechanism by which they could present financial institutions with an electronic file, such as a utility bill or council tax statement, to confirm their identity.

This is not blue-sky thinking. Chris Pearson, Director of Intermediary Mortgages, Royal Bank of Scotland, recently announced:

“We recognise that an increasing number of customers are making the choice to do their day-to-day banking online and therefore don’t necessarily receive paper bank statements anymore. Being able to accept internet bank statements will certainly contribute to speeding up the application to offer process and will also make life easier for brokers and their clients.”

Given that a future National Identity Register might herald greater involvement by government agencies in people’s lives, consumers may value the independence of being able to prove their own identity, even if they can only do so electronically.

*FSA guidelines for proof of identity

The law requires financial services firms to identify new customers. Guidance is provided by the JMLSG (Joint Money Laundering Steering Group):

Option 1. A passport or photo-card driving licence; or combinations of certain official documents such as an old-style full UK driving licence plus a council tax letter or statement.

Option 2. Without these documents, a bank or other financial firm may accept certain documents relating to your circumstances, such as a:

• Letter from a government department or local authority confirming a right to State benefits
• Suitable confirmation of identity from a young person’s workplace or educational institution
• Letter confirming a person’s identity from a care-home manager or warden of sheltered accommodation or a refuge

There are further options for groups such as international students, migrant workers, refugees, asylum seekers, prisoners and those on probation. Details are available in the JMLSG guidance.

Option 3. Without any of the documents required, a firm may accept a letter confirming your identity from an ‘appropriate person’ who knows you, such as a social worker, doctor or teacher.

Some firms will check databases such as the electoral roll and those kept by credit agencies.

Sources

Guy Clapperton, FT, ‘Bills lose their utility in the war on fraud’, 23 August 2007
FSA website, ‘Systems and Controls Handbook’
FSA website, ‘Money Made Clear’
Chris Sullivan, HMRC, ‘Current opinion’, August 2007
Markets in Financial Instruments Directive website, ‘Know Your Customer and Anti Money Laundering Requirements’
Chris Pearson, RBS Intermediaries, ‘The Evolution of Identification’, 21 July 2007
British Banking Association, ‘Proving Your ID’, May 2005
British Banking Association, ‘ID Requirements’, May 2004

Miles Quitmann, Director, OneVu, December 2007

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