Digital identity verification tool could 'transform' customer due diligence procedures, says expert

Technology and financial services law expert Angus McFadyen of Pinsent Masons, the law firm behind Out-Law.com, said verifying that customers are who they say they are "is one of the greatest obstacles to online and cross-border product distribution".

"The standards vary widely across Europe despite the fact that they are based upon the same European anti-money laundering legislation – the UK is relatively progressive in terms of its approach to e-verification whereas countries like France, Germany and Italy have more conservative rules which make e-verification challenging," McFadyen said.

"Developing an accepted electronic/online tool to complete customer verification could have a transformative effect if it can meet the standards of all the European markets. To achieve this, there will be tough questions to answer around what degree of reliance can be placed on data within the database, and how easily the database could be manipulated by fraudsters," he said.

McFadyen was commenting after e-authorisation solution provider MyBank launched a new pilot identify verification service. The company said its service has been designed in response to "growing demand for pan-European identity verification services that protect the consumer’s privacy while enabling businesses and public authorities to verify or request information regarding the identity of their counterparties in any online transaction".

MyBank, with links to a number of major banks through its parent companies, has asked payment service providers and other service providers to volunteer for the pilot to test out the "reliability, security and the usability of the solution". MyBank said the piloting of its service will run from mid-November this year until February 2016. It has called on interested participants to register for the pilot via its website before 16 October.

The company said the identity verification service it has developed has in-built privacy controls for consumers to use.

"Consumers will be able to protect their privacy by controlling exactly what information is sent to third parties as the transmission of all identity-related information must by explicitly authorised by consumers via their secure online banking platform," MyBank said.

The MyBank tool is one of a number of different digital identity initiatives that have been devised in recent times.

The UK government has been developing an identity assurance scheme called 'Verify' which enables third-party verification of users of online government services. The scheme is aimed at streamlining the identity verification process for both government bodies and the public.

Similar aims are being pursued within the financial services sector through the 'digital passport' initiative being developed by The Savings and Investments Policy project (TSIP). TSIP is a coalition of 50 entities from across the financial services industry established by the Tax Incentivised Savings Association (TISA).

The digital passport is "a secure store of validated client information, with that information being used to support the identification of the client", David Dalton-Brown, director general of TISA has said.

The idea behind the digital passport is for consumers to give access to the data required for verifying their identity to service providers when opening up new accounts or purchasing a financial product. It avoids consumers having to resubmit the same authentication documentation time and again.