What did you think of the US election? I don’t mean the candidates and the outcome. What did you think of the election process? Should it be possible for national elections of this type to be done online? Last week the IET published a paper on internet voting in the UK, led by our good friend at the University of Surrey, Professor Steve Schneider. It’s well worth a read. As the paper explains, internet voting for statutory political elections is a uniquely challenging problem. Firstly voting systems have exacting requirements and secondly, the stakes are high with the threat of state level interference.
I listened with interest to yesterday’s parliamentary committee on the proposed NHSX contact tracing app, which is being trialled on the Isle of Wight from today. You can see the recording here.
Much of the discussion concerned the decision to follow a centralised approach, in contrast to several other countries such as Germany, Switzerland and Ireland. Two key concerns were raised:
1. Can a centralised system be privacy respecting?
Of course the answer to this question is yes, but it depends on how data is collected and stored. Cryptographic techniques such as differential privacy are designed to allow data to be de-indentified so that is can be analysed anonymously (e.g. for medical research) for example, although there was no suggestion that NHSX is actually doing this.
The precise details of the NHSX app are not clear at this stage but it seems that the approach will involve identifiers being shared between mobile devices when they come into close proximity. These identifiers will then be uploaded to a central service to support studying the epidemiology of COVID-19 and to facilitate notifying people who may be at risk, having been in close proximity to an infected person. Whilst the stated intention is for those identifiers to be anonymous, the parliamentary debate clearly showed there a number of ways that the identifiers could become more identifiable over time. Because the identifiers are persistent they are likely to only be pseudonymous at best.
By way of contrast, a large team of academics has developed an approach called DP-3T, which apparently has influenced designs in Germany and elsewhere. It uses ephemeral (short-lived) identifiers. The approach is not fully decentralised however. When a user reports that they have COVID-19 symptoms, the list of ephemeral identifiers that user’s device has received, when coming into close proximity to other devices, is shared via a centralised service. In fact, they are broadcast to every device in the system so that risk decisioning is made at the edges not in the middle. This means that no central database of identifiers is needed (but presumably there will be database of registered devices).
It also means there will be less scope for epidemiological research.
All of this is way beyond the understanding of most people, including those tasked with providing parliamentary scrutiny. So how can the average person on the street or the average peer in Westminster be confident in the NHSX app? Well apparently the NHSX app is going to be open sourced and that probably is going to be our greatest protection. That will mean you won’t need to rely on what NHSX says but inevitably there will be universities, hackers, enthusiasts and others lining up to pick it apart.
2. Can a centralised system interoperate with the decentralised systems in other countries to allow cross border contact tracing?
It seems to us that whether a system is centralised or not is a gross simplification of the potential interoperability issues. True, the primary issue does seem to be the way that identifiers are generated, shared and used in risk decisioning. For cross border contact tracing to be possible there will need to be alignment on a whole range of other things including technical standards, legal requirements and perhaps even, dare I say it, liability. Of course, if the DP-3T model is adopted by many countries then it could become the de facto standard, in which case that could leave the NHSX app isolated.
Will the NHSX app be an effective tool to help us get back to normal? This will depend entirely on how widely it is adopted, which in turn will require people to see that the benefits outweigh the costs. That’s a value exchange calculation that most people will not be able to make. How can they make a value judgment on the potential risks to their civil liberties of such a system? The average user is probably more likely to notice the impact on their phone’s battery life or when their Bluetooth headphones stop working.
The opening keynote at identity week in London was given by Oliver Dowden, the Minister for implementation at the Cabinet office and therefore the person in charge of the digital transformation of government. At Consult Hyperion we think digital identity is central to digital transformation of government (and the digital transformation of everything else, for that matter) so I was looking forward to hearing the UK government’s vision for digital identity. I accompanied the Minister on his visit to the IDEMIA stand where he was shown a range of attractive burgundy passports.
In his keynote, the Minister said that the UK is seen as being at the cutting edge of digital identity and that GOV.UK Verify is at the heart of that success.
(For foreign visitors, perhaps unfamiliar with this cutting edge position, a spirit of transparency requires me to note that back on 9th October 2016, Mr. Dowden gave written statement HCWS978 to Parliament, announcing that the government was going to stop funding Verify after 18 months with the private sector responsible for funding after that.)
Given that the government spends around £1.5 billion per annum on “identity, fraud, error, debt, how much identity costs to validate, and how much proprietary hardware and software bought”, it’s obviously important for them to set an effective strategy. Now, members of the public, who don’t really know or care about digital ID might be saying to themselves, “why can’t we just use ‘sign in with Apple’ to do our taxes?”, and this is a good point. Even if they are not saying it right now, they’ll be saying it soon as they get used to Apple’s mandate that all apps that allow third-party sign-in must support it.
Right now you can’t use a GOV.UK Verify Identity Provider to log into your bank or any other private sector service provider. But in his speech the Minister said that he looks forward to a time when people can use a single login to “access their state pension and the savings account” and I have to say I agree with him. Obviously you’d want a different single login for gambling and pornography, but that’s already taken care of as, according to Sky News, “thanks to its ill-conceived porn block, the government has quietly blundered into the creation of a digital passport – then outsourced its development to private firms, without setting clear limits on how it is to be used”. One of these firms runs the world’s largest pornography site, Pornhub, so I imagine they know a thing or two about population-scale identity management.
Back to the Minister’s point though. Yes, it would be nice to have some sort of ID app on my phone and it would be great if my bank and the HMRC and Woking Council and LinkedIn would all let me log in with this ID. The interesting question is how you get to this login. Put a PIN in that and we’ll come back to it later.
The Minister made three substantive points in the speech. He talked about:
- The creation of a new Digital Identity Unit, which is a collaboration between DCMS and Cabinet Office. The Unit will help foster co-operation between the public and private sector, ensure the adoption of interoperable standards, specification and schemes, and deliver on the outcome of the consultation.
- A consultation to be issued in the coming weeks on how to deliver the effective organisation of the digital identity market. Through this consultation the government will work with industry, particularly with sectors who have frequent user identity interactions, to ensure interoperable ‘rules of the road’ for identity.
- The start of engagement on the commercial framework for consuming digital identities from the private sector for the period from April 2020 to ensure the continued delivery of public services. The Government Digital Service will continue to ensure alignment of commercial models that are adopted by the developing identity market to build a flourishing ecosystem that delivers value for everyone.
The Minister was taken away on urgent business and therefore unable to stay for my speech, in which I suggested that the idea of a general-purpose digital identity might be quite a big bite to take at the problem. So it would make sense to look at who else might provide the “digital identities from the private sector” used for the delivery of public services. Assuming the current GOV.UK Verify identities fail to gain traction in the private sector, then I think there are two obvious private sector coalitions that might step in to do this for the government: the big banks and the big techs.
For a variety of reasons, I hope that the big banks are able to come together to respond to the comments of Mark Carney, the Governor of the Bank of England, on the necessity for a digital identity in the finance sector to work with the banks to develop some sort of financial services passport. I made some practical suggestions about this earlier in the year and have continued to discuss the concept with potential stakeholders. I think it stacks up, but we’ll have to see how things develop.
On the other hand, if the banks can’t get it together and the big techs come knocking, they are already showing off their solutions. I’ll readily admit that when the Minister first said “private sector identities”, the first thought to flash across my brain was “Apple”. But I wouldn’t be at all surprised to go over to the HMRC web site fairly soon to find a “log in with Amazon” and “log in with Apple” next a button with some incomprehensible waffle about eIDAS that I, and most other normal consumers I’m sure, will simply ignore.
How do you use Apple ID to log into the Inland Revenue? Easy: you log in as you do now after sending off for the password and waiting for it to come in the post and that sort of thing and then once you are connected tell them the Apple ID that you want to use in the future. If you want to be “firstname.lastname@example.org” or whatever, it doesn’t matter. It’s just an identifier for the Revenue to recognise you in the future. Then next time you go to the Inland Revenue, you log in as email@example.com, something pops up on your iPhone and you put your thumb on it or look at it, and bingo you logged in to fill out your PAYE.
How time flies, GDPR has just had its first birthday!
This past year you will have been inundated with articles and blogs about GDPR and the impact on consumers and businesses alike. According to the UK’s Information Commissioner, Elizabeth Denham, GDPR and its UK implementation, the Data Protection Act (DPA) 2018, has marked a “seismic shift in privacy and information rights”. Individuals are now more aware of their information rights and haven’t been shy about demanding it. In the UK, the ICO received around 14,000 personal data breach reports and over 41,000 data protection concerns from the public from 25 May 2018 to 1 May 2019, compared to around 3,300 PDB reports and 21,000 data protection concerns in the preceding year. Beyond Europe, the regulation has had a remarkable influence in other jurisdictions, where they have either enacted or are in the process of enacting a ‘GDPR equivalent’ law – something similar is underway in Brazil, Australia, California, Japan and South Korea.
With all the good intentions of GDPR some of its provisions contradict, other, equally well-intentioned EU laws. Bank Secrecy Laws on one hand, require that customers’ personal data should be protected and used for the intended purpose(s), except where otherwise consented to by the customer. AMLD4/5 on the other hand, requires that identifying personal data in ‘suspicious transactions’ should be passed on to appropriate national authorities (of course without the customer’s consent/ knowledge). Then PSD2 requires banks to open up customers’ data to authorised Third Party Providers (TPPs), subject to obtaining the customer’s consent. One issue that arises out of this is the seeming incongruity between Article 94 PSD2’s explicit consent, and GDPR’s (explicit) consent.
Under GDPR, consent is one of the lawful bases for processing personal data, subject to the strict requirements for obtaining, recording, and managing it, otherwise it’s deemed invalid. In some cases, a lack of good understanding of these rules has resulted in poor practices around consent processing. That is why organisations like the Kantara Initiative are leading the effort in developing specifications for ‘User Managed Access’ and ‘Consent Receipt’.
In addition, EU regulators have been weighing in to clarify some of the conundrums. For example, the Dutch DPA issued a guidance on the interplay of PSD2/GDPR, which shows that there’s no straightforward answer to what seems like a relatively simple question, as one might think. The EDPB has also published an opinion on the interplay between GDPR, and the slowly but surely evolving ePrivacy regulation. Suffice to say, correctly navigating the compliance requirements of all these laws are indeed challenging, but possible.
What will the second year of GDPR bring?
While regulators are keen to enforce the law, their priority is transparent co-operation, not penalties. The ICO has provided support tools, and guidance, including a dedicated help line and chat services to support SMEs. They are also in the process of “establishing a one-stop shop for SMEs, drawing together the expertise from across our regulatory teams to help us better support those organisations without the capacity or obligation to maintain dedicated in-house compliance resources.” However, for those who still choose to ‘wilfully or negligently break the law’, GDPR’s recommended administrative fines may help to focus the mind on what is at stake, in addition to the ‘cleaning up’ costs afterward. Supervisory Authorities require time and resources to investigate and clear the backlog as a result of the EU wide increase in information rights queries and complaints of the past one year. The UK’s ICO, and its Netherlands and Norwegian counterparts are collaborating to harmonise their approaches and establish a “matrix” for calculating fines. France’s CNIL has led the way with the $57 million Google fine earlier in the year, however, the ICO has confirmed that there will soon be fines for “a couple of very large cases that are in the pipeline, so also,the Irish DPC expects to levy “substantial” fines this summer.
A new but important principle in GDPR is the ‘accountability principle’ – which states that the data controller is responsible for complying with the regulation and must be able to demonstrate compliance. So, it is not enough to say, ‘we have it,’ you must be able to produce ‘appropriate evidence’ on demand to back it up. The ICO states in its ‘GDPR – one year on’ blog that “the focus for the second year of the GDPR must be beyond baseline compliance – organisations need to shift their focus to accountability with a real evidenced understanding of the risks to individuals in the way they process data and how those risks should be mitigated.” By now one would expect that most organisations would have put in the effort required beyond tick boxes to achieve an appropriate level of compliance with the regulation so they can reap the reward of continued business growth borne out of trust/loyalty from their customers.
One of the methods of demonstrating GDPR accountability is through a Data Protection Impact Assessment (DPIA) – a process by which organisations can systematically analyse, identify, and minimise the data protection risks of their project or plan ‘before going live.’ GDPR does not mandate a specific DPIA process, but expects whichever methodology chosen by the data controller to meet the requirements specified in its Article 35(7).
At Consult Hyperion, we have a long track record of thinking about the risks associated with transactional data, so much so that we published and continue to use our own Structured Risk Analysis (SRA) methodology. Our approach, in response to the needs of our customers, has always been to describe the technological risks in a language that allow the business owner, who ultimately owns the risk, to make a judgement. Building on this we have developed a business focused approach to GDPR compliant DPIA to help our customers, for the products we design, review, or develop for them.
If you’re interested in finding out more, please contact: firstname.lastname@example.org
Chyp believes that collaboration and knowledge sharing across markets can help the advancement of the industry and this is particularly true in transport ticketing. For example, we have found that our work for TfL with a large population and high journey count is not all directly applicable to smaller countries who cannot make such significant investments in infrastructure to serve small populations.
Recently, we have been working for MMRDA in Mumbai, India. While the environment is very different in some respect, compared to the UK, they have large passenger numbers and administer a system that makes extensive use of private transport operators, two factors similar to Transport for the North (TfN).
Sharing knowledge not only helps speed to market of deployments but creates a trusted environment and one with credibility. MMRDA asked Chyp to facilitate meetings for them in the UK with transport operators and suppliers in order that they could learn from those who have done it before or are planning to deliver a similar project. The result was a tour of the UK starting in London and taking in Transport for the North. The picture above shows the meeting which was held in Leeds and included presentations from:
Transport for the North
- Alastair Richards (Director Integrated and Smart Travel (IST))
- Jo Tansley Thomas (Programme Manager (IST))
- John Elliott (ABT Back Office Requirements Team Lead (Consult Hyperion))
- Ashish Chandra (PWC India)
Partnerships are hard to form. We hope that MMRDA will benefit from the organisations they met and their sharing in experience planning and deploying ABT in complex environments in the UK, remembering that differences can be as important to learn as similarities.
Over the last few weeks, I have been working with the team inside Consult Hyperion trying to understand the potential impact of the European Union’s PSD2 regulation on our clients’ business. One thing is for certain: it has generated a large number of not-quite-three letter acronyms that will ensure high scores in any game of Acronym Bingo running during a presentation on the subject.
It is clear that the Account Service Payment Service Provider’s (ASPSP or bank to you and me) mobile application will play an important role in any PSD2 compliant transaction. Every time I want to make a bank to bank payment to a new payee, a message will appear in my mobile banking application asking me to verify the transaction and authenticate myself. Will this be the reason I need to keep the mobile banking application on my phone?
Personally, I sit down once a month in front of a computer to do my expenses and pay my bills. I have sufficient standing orders to maximise the return on my Santander 123 account. The rest are settled using Faster Payments, when there are sufficient funds in my account. Being a payment geek, over the years I have loaded several banking applications and PingIt onto my phone. None of these survived the transfer to my next phone as I was not using them. The alternative (my PC and contactless Amex card) are more convenient or deliver the customer experience I need. But perhaps that is changing.
At Consult Hyperion’s excellent Tomorrows Transactions Forum in London earlier this year, Greg Wolfond, CEO of SecureKey, outlined the customer experience to be delivered by the blockchain-based digital identity and attribute sharing service they are building in Canada, with the support of local banks. At the centre of this service was a push notification from the bank, via their mobile banking application, that a third party wanted confirmation of my age or address and a request for permission for the bank to share those details with the third party. To me the bank is the logical place to keep valuable personal information. Most have been doing it for over 100 years usually in the form of paper documents – birth, marriage certificates and Land Registry Property Deeds. However, in a connected world third parties need to be able to access this information when I give them permission. This process must be instantaneous, as I am likely to be on the third party’s website or in their store signing up for a service when the request comes through. I will be in a similar place when I want to make a PSD2 compliant payment.
Earlier this summer, I sold the last of my larger toys, a Laser 1 dinghy. Kids have left home, wife prefers to ramble with the dog, sailing club just too far away, water too cold …. The list of reasons why I should keep it was getting too long.
I posted the boat on Apollo Duck, (think eBay for the sailing community) assuming people would come to view it, we would agree a price, they would give me a cheque, I would bank it and they come back a week later to pick up the boat, when the funds were in my account. Everything was going to plan, until it came to payment. Rather than pull out a pad of paper, he opened his Barclays’ mobile banking application, asked for my bank details and transferred the funds using Faster Payments. Five minutes later the funds were in my account and we were packing the boat up for him to take away. The whole process, from viewing to take away was reduced from 7 days to just over 90 minutes. We did not move from my front lawn, except to access my PC to check that the funds had gone into my account.
This appears to have been the vision of those very clever people in the European Union when they drew up the PSD2 regulations. However, is the mobile banking application the right channel for such services?
In the UK smartphone penetration rates are around 81% of all mobile phone users. However, this figure varies according to the subscribers age, from 90% of subscribers aged between 16 and 24 to 18% of those over 64 . The older generation are likely to have more savings spread across multiple products from multiple providers. If they prefer not to load the mobile banking application onto their phone are there alternative solutions which they can use to authenticate themselves to multiple ASPSP?
Barclays UK does a very good job verifying me using my payment card and their PinSentry device or mobile application across all the channels that I access their services. I can also use the PinSentry device with cards from other banks which support the CAP User Interface Specification, but don’t tell Barclays. There are other solutions from organisations such as FiTeq which remove the need for the separate CAP reader and the payment schemes who are promoting the use of their 3D Secure service for use with other payment solutions.
One of the drivers behind PSD2 was to drive innovation and competition. Is SCA the first place we will see this?
I recently came across a statistic that surprised me.
Approximately 50% of new bank accounts are opened by customers that have recently arrived in the UK to work or study.
I had wrongly assumed that the majority of new bank accounts openings in the UK would be from students just about to go off to University, like my son, and that migration whilst high (as the media keeps telling us) would still be a minority. But based on some back-of-the-envelope calculations it appears that the 50% number is about right.
As the OIX report above points out, these new arrivals in the UK are very difficult to perform KYC (“Know Your Customer”) on due to the lack of data. They have no history in the UK. This is exactly where eIDAS should be able to step in. For example, a person arriving from France should be able to use their French government-issued eID as one piece of evidence to help meet KYC requirements. The proposed new AML legislation – the amendment to the fourth AML directive – which I have seen referred to as AMLD4.1, AMLD5 and 5AMLD, explicits call out to eIDAS as a potential solution.
There are however some issues with this:
Firstly, to become part of the eIDAS scheme, governments have to “notify” their eIDs into the scheme. To date only Germany has done so.
Secondly, eIDAS provides a switching infrastructure that makes all eIDs interoperable but initially this will only available to the public sector. If a private sector organisation, such as a bank, wishes to leverage an eID it will need to find another way to access or read it.
Thirdly, the mobile channel is becoming increasingly important with banks needing to be able to onboard customers directly in that channel, as well as performing identification and verification of existing customers when provisioning a mobile app. Several of the existing eIDs are smart-card based. These will only be readable by phones if the cards themselves are contactless (which many of them are). They will not however be readable on iPhones, even with the limited opening up of the NFC interface expected in iOS11.
There is clearly therefore a need for some alternative mobile based technology. Fortunately such technology exists in the form of mobile document and selfie capture and verification. One of the vendors in this space, Mitek, kindly commissioned Consult Hyperion to write a paper on this very topic which I had the privilege of presenting at Money2020 last week. You can download the paper here:
The new administrations in the UK and USA are apparently planning to work together to create a new transatlantic America First / Buy British trade alliance. This will, it seems, include financial services.
A deal to reduce barriers between American and British banks through a new “passporting” system was being considered by Mr Trump’s team
Now what this passporting might mean is anyone’s guess, since this is just a newspaper story based on gossip, but I think it might be a little more complex to arrange than it seems at first because of the nature of banking regulation in the United States. If a British bank were to get a US banking passport this would presumably be equivalent to the implicit granting of a national bank charter and state regulators do not seem enthusiastic about the granting of more national bank charters. We know this, because at the end of 2016 the US Office of the Comptroller of the Currency (OCC) said that it was going provide a new national bank charter for fintech companies.
“The OCC will move forward with chartering financial technology companies that offer bank products and services and meet our high standards and chartering requirements,” said Comptroller of the Currency Thomas Curry
The reason for wanting to do this is obvious: right now, if I want to create a competitor to Venmo or Zelle, I have to either have to be regulated as a payment processor and have regulated banks involved or go and get regulated by 50 different state regulators under 50 different regulatory regimes, most of which remain rooted in a previous, pre-internet age. This seems anachronistic. Surely an American company should be able to a get a licence and get going. Well, the OCC’s proposal is attracting a lot of negative comment.
A turf war is brewing between US state and federal regulators over oversight of the financial technology sector after New York’s top watchdog sent a stinging letter to the Office of the Comptroller of the Currency (OCC), telling it to back off plans for a national bank charter for fintech firms.
Now I saw a few comments about this and other responses from state regulators that cast them in the role of Luddites standing in the way of progress but I have to say I agree with them. I mean, I am not a lawyer or anything, I don’t really understand US banking regulation and I couldn’t make any sensible comments on the proposals myself, but I think that the US regulatory environment is broadly speaking unfit for purpose and might benefit from at least a cursory examination of the direction of regulation in one or two other jurisdictions including Europe, for example and India.
The fundamental problem with the OCC proposals to my mind is that they are about a national charter for banking as a whole. They do not distinguish between the payments business and other parts of the banking business. Hence the charter means extending systemically risky credit creation activities in new directions. I don’t see any immediate problem that this solves. And the state regulators may well be right that it potentially makes the problems associated with banking regulation much worse.
Connected to this is the worry that a national charter would encourage large ‘too big to fail’ institutions – a small number of tech-savvy firms that dominate different types of financial services simply because they are able to get a national charter.
Whatever you think about Facebook they are not too big to fail. If Facebook screw up and lose a ton of money and go out of business then that is tough luck on their employees and their shareholders but it’s nobody else’s problem. That’s how capitalism is supposed to work. But if Facebook obtained a national banking charter they would immediately become too big to fail and no matter the greed or incompetence of their management, the government will be on the hook to bail them out just as the Roman senate was forced to bail out the banks there two millennia hence.
(In case you are curious, in 33BCE the emperor had to create 100 million sesterces of credit (a trifling couple of billion dollars in today’s money) through the banks to save them from collapse. Plus ca change, as they didn’t say in Ancient Rome).
If you look at what is happening in other jurisdictions, what you see is a separation of payments and banking so that the systemically less risky payment activities, which many people see as somewhat less than optimal in the world’s largest economy, can be reinvigorated while the systemically more risky credit business and investment banking business are left alone. In the European Union there is the regulatory category of the payment institution (PI). In Europe, Facebook is therefore a payment institution and not a bank. They don’t want to lend people money, they want to facilitate buying and selling and for that they need access to core payment systems and that’s all to the well and good. Similarly, in India, the regulator created the new category of payment bank (PB) so that mobile operators and others could start providing electronic payment services to what will soon be the world’s most populous nation.
The reasons for going down this path are entirely logical. If you leave innovation to the banking system then you end up in the situation of India as was or Nigeria as it is. A huge population, phones everywhere, talented and entrepreneurial people, huge and unfulfilled demand and… Nothing happening. I’m sure you’re all utterly bored with me reminding you, but the key innovations in technology in banking do not originate in banks. That’s the nature of the beast. The four digit PIN code was invented by a Scottish engineer. The payment card was invented by New York lawyer. M-PESA was invented by a telco. Bitcoin was invented by… Well, for all I know, it may well have been the head of Citibank or programmer number 2216 in the North Korean army, but you get my point.
This is why I think that the OCC should leave the regulation of credit institutions where it is now and propose instead a new national charter for payment institutions amalgamating the European PI and Electronic Money Institution (ELMI). Allow these American Payment Institutions (let’s shorten this to APIs to avoid confusion) to issue electronic money but not to provide credit, allow membership of payment schemes (e.g., the UK’s Faster Payment Service, Visa and so on), ensure customer balances are held in Tier 1 capital and so on. This way, Apple and Verizon can apply for a national charter and start providing competitive payment services that will benefit businesses and consumers and the existing banks will just have to suck up the loss of payment revenues for the greater good.
The passporting of such institutions should be much less controversial than the passporting of credit institutions. Surely it will be to everyone’s benefit if the “fintech” passporting agreements give UK and EU payment institutions the right to operate nationally in the United States, in return giving recipients of my proposed American Payment Institution charter the right to operate in the UK and EU? This would allow innovation and competition in the fintech space without creating yet another financial time bomb that bankers will inevitably trigger.
The UK’s new Payment Systems Regulator is now open for business. I imagine that their highest priority work stream will be around access to payment systems, because this is what “challenger” banks need in order to create the more competitive environment that the UK Treasury wants.
I’m not smart enough to know what the most appropriate AML rules are, but I think I am smart enough to know that the current rules are not.