The government recently published new plans which will oversee the use of digital identities and revolutionise mortgage transactions.

The new digital identity and attributes trust framework is designed to help build confidence in the use of electronic verification and remove the need for physical documents.

While this has long been the more efficient and effective way of verifying a customer’s identity, the pandemic has accelerated the need for legislative change.

The government’s plan will radically transform housing transactions. Currently clients are often required to prove their identity multiple times to a lender, conveyancer, and estate agent.

What’s more, at the moment, there around 1.2 million housing transactions each year, 300,000 of which fall through, according to the residential property data agency TwentyCi. Identity (ID) is currently checked multiple times throughout the process.

This means there are approximately 14 million copies of ID ‘floating’ around, and these are stored for five years. These can be on mobile phones, computer systems or just files of paper copies. Whereas a standardised digital ID framework will ensure that a client’s ID is copied only once during the process, and this can then be shared to all parties involved in the transaction.

What will this mean for lenders?

The switch will avoid the issues caused for lenders which currently have to store ID for five years. At the moment, holding ID data presents a risk as these can be stolen. Whether physically kept in a filing cabinet or on a hard-drive, there is always a chance that these can be taken and sold.

The transition to digital ID systems will prevent such risks. By using an electronic verification system, lenders can speed up the process and protect themselves against liability if identity is stolen.

While in the future the responsibility may lie solely with conveyancers, currently lenders must check ID. Any changes to the law may take years to implement so in the meantime, lenders should ensure they make the switch to electronic verification (EV) as soon as possible.

What is electronic verification and what are the benefits?

The use of electronic verification as an alternative to hard copy documents for checking customer ID has become much more important in a post-coronavirus world.

Not only is it harder to carry out manual checks due to restrictions on movement, but the threat of criminals exploiting the gaps in security as more of us work from home, has also increased.

The latest technology can combine credit reference data, biometric facial recognition, and digital fraud checks as well as electoral roll data and other reliable public sources to establish identity.

By triple checking these different sources of information a unique ‘composite digital identity’ is produced that is virtually impossible to fake. All this can be done online, with no need for in-person meetings, face coverings or hard copies of documents.

Lenders can be up and running with a full one-stop-shop electronic AML platform that partners with the world’s best data suppliers in 24 hours.

With HMRC increasing the risk of money laundering through property purchase to be high in its recently published risk assessment, lenders shouldn’t underestimate the scale of the problem as it currently stands.

While a standard digital ID may help prevent that in the future, it could be some time before the framework is complete. In the meantime, lenders, and all involved in property transactions, have a part to play in preventing fraud.

John Dobson is CEO of SmartSearch UK