Federal Rules May Not Fully Secure Online Banking Sites

IT execs say banks and credit unions need more than strong authentication

Financial institutions that truly want to bolster their online security need to look beyond the federal guidelines on end-user authentication that go into effect Jan. 1, IT managers and analysts said last week.

The guidelines, issued last year by the Federal Financial Institutions Examination Council (FFIEC), call on banks and credit unions to adopt so-called strong authentication measures for protecting online customers against identity theft and other types of fraud.

The FFIEC’s requirements have gotten the financial services industry to turn its attention to the issue of online security, said Gartner Inc. analyst Avivah Litan.

No Silver Bullet

But strong authentication “certainly isn’t a silver bullet,” said Melissa Auchter, CIO at Parda Federal Credit Union in Rochester, Mich. “It just protects one doorway. It’s one more measure in a comprehensive approach to protecting the assets of our members.”

Early this month, Parda finished rolling out a multifactor authentication tool from BioPassword Inc. that uses a combination of standard log-in credentials and information about the keyboard typing rhythms of users to control access to their accounts. But Auchter said Parda has also invested in a layered set of defenses, including transaction-level fraud monitoring.

For the past year, the University of Wisconsin Credit Union in Madison has been using software from Corillian Corp. to authenticate its online users during log-in and, to a limited extent, in the transaction stage. Eric Bangerter, the credit union’s director of Internet services, said the software lets the financial institution profile users’ systems and online behavior and then challenge them to provide extra proof of their identity if any changes from the norm are detected.

The credit union also plans to add a stronger “out-of-band” process, in which automated phone calls will be made to account holders if there’s still reason to doubt their identity, Bangerter said.

That is necessary because phishers have already begun to find ways to compromise most challenge-and-response forms of strong authentication, he noted. “Eventually,” Bangerter said, “I would like to eliminate the challenge questions completely because they don’t add much to security.”

Under the FFIEC’s guidelines, banks and credit unions are supposed to augment single-factor authentication processes — typically based on a username and password — with a second form of authentication by year’s end.

The guidelines aren’t a formal mandate, but the FFIEC plans to start auditing financial institutions for compliance with them next year.

Don Phan, an analyst at Javelin Strategy & Research in Pleasanton, Calif., said online fraudsters have already found a way to break the one-time passwords that some banks have begun using as a second form of authentication.

Because banks are being asked to focus largely on front-end access controls, “we don’t consider the FFIEC guidance alone to be strong enough to make the consumer safer,” Phan said. “Financial institutions must set their goals higher.” He recommended the use of risk assessment and alerting measures at log-in and for real-time monitoring of an account holder’s activities online.

Chad Graves, vice president of IT at Ent Federal Credit Union in Colorado Springs, said the FFIEC’s guidelines should be adequate for dealing with current threats such as phishing. But he said that Ent Federal may have to add transaction-level controls if it decides to support electronic clearinghouse or wire-transfer transactions.

Copyright © 2006 IDG Communications, Inc.

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