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How reliable is biometric data in tightening bank cyber security?

Multi-factor authentication (MFA) is one important pillar of cyber security in banking. Financial services interests have realised that requiring consumers to provide their personal information before processing transactions can deter data breaches.

And it has worked. Despite the numerous cases of successful high-profile hacking in the past 10 years, involving prominent names in the industry such as JPMorgan Chase and SWIFT, Fortunly believes more people would have been defrauded had there been lax customer authentication policies in place.

However, cyber robbers have managed to exploit a weakness in text-based MFA. In February, The Telegraph reported that Metro Bank and some smaller financial institutions were hacked. The attackers were able to get their hands on the codes sent to customers by capitalising on a flaw in SS7. Telecoms rely on this set of protocols to exchange SMS text messages and calls between one another anywhere in the world.

Clearly, more secure MFA is necessary to protect the integrity of financial services organisations as custodians of sensitive data of billions of people on the planet. This is where biometrics come in.

Unlike texted codes, pieces of biometric data are harder to steal since they are unique to individual consumers. Then again, biometrics are not equal and may not provide different levels of protection.

Fingerprint

Fingerprints, as well as finger-vein patterns, are being used by banks to authenticate customers at brick-and-mortar branches. Scanners for both biological characteristics can deliver fast, accurate results, which allow frictionless in-building and ATM transactions.

The availability of scanners in consumer electronics makes fingerprint authentication a feasible solution to boost cyber security. In fact, it has been adopted by the Royal Bank of Scotland (RBS) for mobile banking. With just one touch, fingerprints can authenticate users to complete card payment transactions made via RBS’s mobile apps.

Face

What is advantageous about facial features as biometric details is that they are hard to cheat. Unlike fingerprints that could be reproduced with tape, the distinct qualities of a face could not in any way, shape or form be mimicked.

Voice

Voice biometric technology is sophisticated, for it considers up to 80 of the distinguishing vocal-tract attributes of a person. As biological data, the voice is actually more unique than the fingerprint.

Citibank has been using voice authentication since 2016. The consumer arm of the Citigroup analyses the voice pattern of a caller based on a pre-recorded voice print to help detect identity thieves more accurately.

Online Behaviour

Signatures, keystroke patterns and website browsing tendencies are some peculiar customer identifiers being tested by some banks to prevent fraud. Behavioural biometric tech may require a ton of historical data to be considered helpful, but its readings are claimed to be 99% accurate.

Conclusion

Ultimately, biometrics are imperfect. Physical characteristics and individual behaviours can change, so they can’t be reliable 100% of the time. Nevertheless, biological data is a potent tool for cyber security all banks should adopt to stay ahead in the game of cat and mouse they play with hackers until the next MFA innovation comes along.

EY appoints Ally Scott as managing partner of Scottish operations

EY has for the first time appointed someone who is not a chartered accountant to head its Scottish operation, and flagged major hiring plans.

Ally Scott, who joined the accountancy firm’s Scottish operation from banking giant Barclays in autumn 2016 as head of transaction advisory services, will succeed Mark Harvey as EY’s managing partner for Scotland on July 1. Mr Harvey will remain a partner of EY until next April, before joining car retailing giant Arnold Clark as chief financial officer in the summer of 2020.

A spokeswoman for EY confirmed that Mr Scott would be the first leader of the Scottish business who was not a chartered accountant.

EY highlighted its ambitions to increase its current Scottish workforce of about 1,000 by 25 per cent over the next 12 months.

The spokeswoman said: “We are going to be recruiting at all levels of seniority but also across all service lines. It is in all geographies as well. It is across the office network.”

EY has offices in Glasgow, Edinburgh, Inverness and Aberdeen.

The accountancy firm noted Mr Scott had led the firm’s Scottish transaction advisory services practice to 15% and 21% growth in its last two financial years, “helping secure deals for prominent Scottish clients such as Simon Howie Group, QTS Group and Weir Group”.

EY noted Mr Harvey had, since taking on the Scotland managing partner role in 2015, raised the annual revenues of the accountancy firm’s Scottish business from about £100 million to £170m.

Mr Scott, who joined Royal Bank of Scotland as a 16-year-old trainee and worked for the Edinburgh-based institution from 1985 to 2005 before joining Barclays, said: “It’s a real honour to take up the role of managing partner. Under Mark’s leadership, EY has enjoyed significant growth in Scotland, securing notable client wins across all service lines and investing in our product offering to support a broader range of businesses.”

He added: “Our ambition to increase headcount to 1,250 staff across all levels in the next 12 months is a strong signal of our intent to build on that momentum. It’s an exciting time to be part of our business. Our continued investment in technology and automation has resulted in our Edinburgh office becoming EY’s UK centre of excellence in data analytics and provides our clients with an exceptional level of strategic insight and clarity in decision-making.”

The EY spokeswoman noted some of the new jobs would be in the data analytics, automation and digital area, but emphasised hiring would be broadly based, citing a ramping up of activity across assurance, advisory and tax operations.

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Law At Work celebrates record success

Law At Work (LAW) has made two strategic hires as it celebrates record success in the first half of its financial year.

Revenues are up 30 per cent on the same period last year with growth coming from the acquisition of new clients, including Border Biscuits and Shetland Arts Trust, as well as increased demand for health & safety support as well as employment law mainly due to the changes around employment tribunals fees.

The HR At Work team, boosted by the acquisition of Square Circle HR in 2016, has expanded to include senior HR consultant, Lynn Lavelle, who has 15 years’ experience as an HR advisor, and has previously worked in Royal Bank of Scotland’s mentor division.

The second strategic hire, Michael Moran, joined Safety At Work, the health & safety arm of the business, as manager in January 2018 after a period with one of the UK’s largest fixed-fee consultancy firms, Peninsula Business Services.

Magnus Swanson, chairman of Law At Work, said: “Our growing teams have been extremely busy and we have been recruiting in all three service areas. It is exciting to see our investment in quality staff and IT paying dividends and our revenues of £1.48m for the first half of the new financial period are up 30 per cent on the previous year.

“Clients have responded well to the wealth of resources and expertise available to them, and many of our long-term clients have signed up for further five-years contracts.

“2018 is on course to be one of our most successful years yet and our teams are motivated to continue building upon this momentum.”

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City watchdog consults on huge expansion of ombudsman scheme

City watchdogs want to radically expand access to redress for tens of thousands of small businesses that cannot afford the legal costs of taking banks and other financial services providers to court.

In a consultation paper today, the Financial Conduct Authority proposes bringing an additional 160,000 SMEs within the remit of the Financial Ombudsman Service (FOS), which has the power to order compensation for loss up to £150,000. This would be achieved by greatly increasing the eligibility threshold for referring complaints to the ombudsman, which presently covers only individual consumers and microbusinesses.

Today’s development follows a Commons debate last Friday on calls for a formal tribunal system to deal with such disputes, spurred by controversy enveloping Royal Bank of Scotland and its Global Restructuring Group. Barrister Richard Samuel of 3 Hare Court, principal author of the tribunal plan, insists this route would be ‘100% better’ than expanding the ombudsman scheme because tribunals can ‘change culture’ and develop the law.

In today’s consultation, the FCA points out that many SMEs struggle to resolve disputes with financial services providers through the courts and have few alternative routes to redress. Only a tiny proportion of SMEs go to court as the associated legal costs can swallow up a large chunk of the claim.

’Not all legal action requires a court hearing, but even starting legal proceedings can be very expensive,’ says the FCA. ’The court fee alone for starting a claim of over £10,000 is 5% and fees are only capped once the value of the claim goes over £200k. SMEs might also be discouraged from taking issues to court by the prospect of having to cover the other party’s legal costs.’

Under the FCA’s plan, about 160,000 additional SMEs would be able to refer complaints to the ombudsman. The watchdog wants to widen eligiblity to those with turnover below £6.5m, an annual balance sheet total under £5m and fewer than 50 staff.

The FCA points out that a more formal scheme of resolving disputes – such as a tribunal – would require legislation, ‘which only the government is in a positon to bring about’.

But Richard Samuel dismissed this, pointing out that primary legislation already exists in the form of the Tribunals, Courts and Enforcement Act 2007. ’You could simply expand an existing chamber or bolt on a new one,’ he told the Gazette.

Samuel suspects the Treasury has little appetite for establishing a new tribunal as its civil servants grapple with Brexit. But he believes a new tribunal would not be difficult to establish or expensive, as funds could simply by reallocated from mass redress schemes that are being closed down anyway.

’Tribunals could change banking culture,’ Samuel stressed. ’Look at how employment tribunals moved us on from the “master-slave’ scenario to the current framework of unfair dismissal and discrimination. A second factor in the favour of tribunals is that they apply and create law – the ombudsman service does not, merely coming to a “reasonable outcome”. If we want the law to develop that is the way to go.’

Samuels also pointed out that the ombudsman service is not wholly independent in that it is funded by the banks.

First interest rate rise in 10 years adds to UK mortgage burden

Bank of England’s raised cost of borrowing, from 0.25% to 0.5%, may add £22 a month to average variable interest rate loans.

Millions of homeowners face higher mortgage payments after the Bank of England said it could no longer tolerate the inflation level and announced the first increase in interest rates in more than 10 years.

Despite weak growth and mounting uncertainty over the terms of Britain’s exit from the EU, Threadneedle Street increased interest rates to 0.5% from 0.25% on Thursday, reversing emergency action taken immediately after the Brexit vote.

The move will add £22 a month to the costs of servicing the average variable rate mortgage, although the recent popularity of fixed-rate home loans means it will initially affect only 43% of home buyers.

Mark Carney, the Bank’s governor, said it was time “to ease our foot off the accelerator” but sought to reassure consumers and businesses that the first increase in rates since July 2007 was not the start of a sustained upward trend.

He said: “To be clear, even after today’s rate increase, monetary policy will provide significant support to jobs and activity. And the monetary policy committee continues to expect that any future increases in interest rates would be at a gradual pace and to a limited extent.”

As things stand, Threadneedle Street is expecting two further quarter-point increases in interest rates by the turn of the decade, which would leave them at 1%.

The Bank said that the financial crisis and deep recession of a decade ago had permanently damaged the economy’s growth potential. Brexit had further reduced the “speed limit” at which the UK could operate without generating higher inflation, Carney said.

Still, the rate decision sparked sharp questions over the ability of consumers to repay loans amid rising use of personal borrowing and credit cards to offset higher prices.

Households are, in total, expected to face about £1.8bn in additional interest payments on variable rate mortgages in the first year alone, according to analysis by the accountancy firm Moore Stephens. The firm also estimates that households will pay as much as £465m in additional costs on credit cards, overdrafts, personal loans and car finance.

The Bank faced criticism for the timing of its decision due to weak readings on the economy and a lack of clarity from the Brexit talks.

The TUC’s general secretary, Frances O’Grady, said: “This is the last thing hard-pressed families need. With living standards falling, the economy needs boosting not reining in.”

David Blanchflower, a former member of the MPC, criticised the rate rise and said it would be reversed. “This is guessonomics. There is nothing in the data to sustain this rise,” he said.

Despite the prospect of higher costs for borrowers, the interest rate rise will prove a boon for savers if banks match Threadneedle Street’s increase with a jump in the interest paid on deposits. Theresa May’s spokesman said the government expected to see higher rates passed on to savers.

Some banks have already said they will increase rates on their savings as well as put up the repayments demanded from borrowers, including Royal Bank of Scotland and TSB.

The move by Threadneedle Street comes amid a squeeze on households’ living standards from rising prices, outstripping the growth in earnings, following the devaluation of the pound since the EU referendum. It hopes that will offset the increase in borrowing costs.

Carney said “the worst of the real income squeeze is ending”, adding that higher interest rates were “part of ensuring that it does not come back”.

About a third of households have a mortgage on a home, according to the Bank. In aggregate, mortgage debt represents about three-quarters of the overall stock of household debt. Fixed-rate mortgages by value have also risen significantly in recent years, to about 60% of the stock of mortgages, which the central bank said meant that the impact of the rate hike would only feed through to households gradually.

Vince Cable, the Liberal Democrat leader, said higher rates presented “a serious problem as many individuals, families and companies rely increasingly on borrowing to get by”.

There have been some signs of consumers using savings or borrowing money from banks or on credit cards to keep up with day-to-day spending in recent months. However, high-street sales are falling at their fastest rate since the height of the recession as consumers tighten their belts. Pushing up the cost of servicing debts, “will kick one of the few parts of the economy that was working”, Cable added.

RBS reports strong earnings putting it on track for first annual profit since 2007

Royal Bank of Scotland beat analyst forecasts by posting £871m in operating profit for the third quarter of its financial year, helped by cost-cutting measures and not having to pay any additional conduct charges.

The bank, which is still state-owned after having been bailed out for £45.5bn during the 2008 financial crisis, has now recorded a profit for each quarter of 2017, putting it on track to record its first annual profit since 2007.

On Friday it said that its common equity Tier 1 ratio, an important measure of a bank’s financial resilience, had also risen by more than expected during the three month period – to 15.5 per cent. At the end of June, the ratio had stood at 14.8 per cent, up from 13.4 per cent in December last year.

“Our core bank continues to generate strong profits and we remain on track to hit our financial targets,” chief executive Ross McEwan said.

Separately on Friday, RBS also said that it had agreed to pay $35m and enter into a non-prosecution agreement with the US Department of Justice to settle a probe of traders accused of defrauding customers on bond prices.

On Friday RBS said that the settlement had been announced on Thursday by an Attorney for the District of Connecticut.