Like many other trends, the changes brought about by Covid-19 led to a huge acceleration in the adoption and use of electronic ID verification (e-IDV) tools by lawyers, conveyancers and property professionals, to confirm the identity of their clients and to comply with Anti-Money Laundering requirements.  

The use of e-IDV tools and services to help with this process has been promoted by references and acknowledgement in the Fifth Anti-Money Laundering Directive and the Legal Sector Affinity Group Anti-Money Laundering Guidance for the Legal Sector, published at the start of 2021.

In addition, initiatives such as HM Land Registry’s Digital ID Framework and DDMC&S’ Digital Identity and Trust Framework have given a snapshot into how the UK government and regulators view the role of Digital ID verification and how they intend to support its use.  

In spite of this positive environment, particularly within legal and property circles, there is some wording contained with the UK Finance Mortgage Lenders’ Handbook which causes ongoing confusion for conveyancers and property solicitors.

In short, they are left unsure as to whether they are able to comply with the provisions at 3.1.5 and 3.1.6 of part 1 of the Handbook, when using  e-IDV tools, rather than obtaining original documents.

The Handbook contains detailed instructions for conveyancers acting on behalf of lenders in residential conveyancing transactions and sections 3.1.5 and 3.1.6 deal with preventing mortgage fraud in particular.  

Section 3.1.5 requires the solicitor or conveyancer to ask the signatory of a document to provide evidence of identity which they must check carefully.

The signatory’s identity should be checked against one of the documents from List A (which includes passport and driving licence) or two documents from List B (which includes documents such as a council tax demand, HMRC letter, credit card statement and recent utility bill).

On the face of it, it is easy to see how  e-IDV meets this standard where a scan or photo of a relevant document is obtained. However, there are instances where the lack of reference to e-IDV tools here has caused unnecessary anxiety on the part of conveyancers.  

The situation is more complex in relation to 3.1.6 which requires conveyancers to check that any document used to verify a signatory’s identity appears to be authentic and current, signed in the relevant place and to take a copy to store on file.

In addition, they must check that the signatory’s signature on the document being used to verify their identity matches their signature on the document they are required to sign now, and that the address shown on the document is that of the signatory.  

The requirement to take a copy of the ID document and to store it on file has, in the absence of clearer wording, led some conveyancers to believe they need to see the original ID document and take a copy.

This would of course undermine the role of electronic ID verification. However, an e-IDV tool would store a “copy” of the ID (as per the requirement in 3.1.5) when scanned or photographed.

Furthermore, where machine learning algorithms are used, electronic ID verification is far superior in detecting whether a document is authentic or fake than the human eye.

It’s entirely understandable why the wording in the Handbook has caused confusion for conveyancers and it would appear that it could be clarified by UK Finance relatively easily.

The irony is that the provision exists to protect against mortgage fraud and yet the wording has influenced some conveyancers to return to manual ID verification to “take a copy” which in turn relies upon less effective techniques to verify that a document is authentic or that the address of the individual is the correct one. 

On a strictly literal reading of the provision, there is no reason that an electronic ID verification tool cannot be used but until the wording is tightened up and the role of digital ID acknowledged in the Handbook, the confusion and reliance on less secure methods will continue.

The issue is made even more challenging by the fact that different lenders have taken their own view and interpretation of section 3.1.6 so conveyancers are not able to operate in a consistent manner.  

In the context of great progress made by governments, regulators and lawmakers to understand and embed digital ID services into major industries, this point stands out.

On the basis that the purpose of ID verification is to reduce the risk of fraud, money laundering and to build trust, confidence and transparency between parties it is clear that this is not being achieved in the most effective way in every instance.

Hopefully UK Finance will clarify this confusion once and for all and allow conveyancers acting for lenders to rely on secure, reliable Digital ID tools with the same degree of confidence that they do generally.  

Sam Ruback is head of legal at Thirdfort