In light of its findings from a recent survey of 20 companies that use the internet, telephone or other remote channels to interact with their customers on a regular basis, the UK Financial Services Authority (FSA) has issued a series of recommendations in its Financial Crime Newsletter for firms to improve controls on the authentication and safeguarding of their customer identities.
The survey was designed to assess the effectiveness of firms' procedures to verify the identity of customers, the effectiveness of firms' controls to protect the security data used for authentication and the impact of identity theft on firms. The FSA has recommended that firms should review the effectiveness of their identity verification procedures. The Authority says this can only be done effectively if they: establish a suitable and effective authentication process, protect the personal data held on customers so that it cannot be stolen and/or used to defraud consumers and firms, and help customers to become more security conscious. The FSA also gives examples of good practice guidelines in each of these three areas.
The main areas for improvement identified by the FSA include lack of customer identity verification, staff being given wide-ranging access to data, failure to encrypt databases containing security data and failure by firms to routinely prove their own identity before asking customers to authenticate themselves.
The FSA expects firms to take adequate measures to protect themselves and their customers by assessing the risks associated with using non-face-to-face means of communication. Firms also have a duty to implement appropriate systems and controls, comply with relevant legislation (for example, the Data Protection Act) and, when planning systems and controls to prevent fraud, to take into account the harm to customers and losses to the firm that could arise as a result of identity theft. Firms that use outsourcing or intermediaries are also expected to make sure that appropriate controls are in place throughout the delivery chain. The FSA notes that it has already taken enforcement action against firms where, for example, insufficient protection has been afforded to customer data and has highlighted that it will continue to do so where appropriate.