Has VOI lost its identity for the Mortgage Industry?
ARNECC is currently working through its consultation process for a proposed Version 6 of its Model Participation Rules.
One of the areas impacted by these proposed changes is requirements around Verification Of Identity. Essentially, the effect of the change would be to mandate the steps outlined in Schedule 8 of the Rules, rather than allow industry participants to determine for themselves what "reasonable steps" should be taken when verifying the identity of its customers.
As we have outlined in a submission to ARNECC, with respect to mortgage transactions this:
In a Notice to Subscribers last year on the subject of Cyber Security, ARNECC flagged these proposed amendments via Version 6 of the Rules, stating:
"The systems used by the electronic conveyancing industry must be trusted. System operators must apply best practices which mitigate fraud and misuse by unauthorised parties" and that an area highlighted by an independent report "related to the risks surrounding the current Verification of Identity (VOI) provisions and what constitutes reasonable steps to identify clients. Reasonable steps can be interpreted very broadly and provides little or no assurance for the prevention of risks such as identity theft and fraud."
It is undoubtedly true that a strong VOI standard helps in preventing the compromise of ELNO systems, and those of its Subscribers. The proposed changes make a lot of sense in relation to ensuring solicitors and conveyancers signing dealings on behalf of clients, can link that dealing back to a strong VOI process.
However it is an entirely different proposition for the mortgagor / mortgagee relationship, where no Subscriber signs within the ELNO on behalf of the mortgagor, and so any supposed weakness in a VOI process cannot lead to misuse or fraud within in the ELNO system.
Consequently, in a mortgage transaction, the adverse impacts on efficiency, costs to the consumer, and competition, far outweigh the intended benefit of these changes.
Among other things, the VOI standard requires the Subscriber or their Agent to verify the identity of their client during a face-to-face, in person (i.e. not Skype) interview.
This makes complete sense in most solicitor/client relationships, and is often simple enough for lenders with large branch or broker networks.
However it presents significant inconvenience and friction where the lending process is not supported by a large national human network, and is the antithesis of the digital world which we all envision.
Currently, mortgagees have the option to apply the VOI Standard themselves, or to:
The effect of the proposed changes is to remove the option for mortgagees to determine for themselves what are reasonable steps to take when obtaining their executed mortgage, even though the commercial risk for any fraud already lies with the mortgagee. Instead it is proposed to mandate this additional cost and friction.
Mortgagees are already bound by identification verification obligations, which require the mortgagee to ensure the identity of the person it may be lending to. This is an additional step not generally required in the solicitor/client relationship the VOI changes are targeted at, and so create an unnecessary duplication.
Where AML is intended to ensure the integrity of the identity in question, the original intention of VOI was to ensure the authenticity of the person purporting to execute as mortgagor. In earlier e-conveyancing times some States sought to ensure the VOI was conducted at the point of mortgage execution, however this has sensibly fallen away in recognition of the impact this would have on competition for smaller industry players lacking a national network.
As it stands now VOI achieves nothing more than AML, unless it is prescribed to occur at the point of mortgage execution, and as an additional cost to the consumer.
Mortgagees already bear the risk of a mortgagor repudiating their signature on a counterpart mortgage that exists outside of the ELNO environment, and that the mortgagee certifies that they hold when lodging the dealing within the ELNO.
The existing requirement to take 'reasonable steps' to VOI the person they are lending money to, satisfactorily addresses the risks attempting to be managed by the proposed changes. Instead, the ability for lenders to manage their own risk and customer on-boarding experience is being diminished without achieving any increase in ELNO operating system security.