New FFIEC Authentication Guidance Calls For Layers

At the end of June, the Federal Financial Institutions Examination Council (FFIEC) issued a supplement to the Authentication in an Internet Banking Environment guidance, which was originally released in October 2005. The substance of the guidance is that financial institutions should base their choices of authentication methods on risk assessments, and that high-risk transactions should be based on layered mechanisms.

The guidance (PDF) paints a somber and accurate picture of the threats facing institutions doing business on the Internet: It cites increasingly sophisticated criminal groups that target financial institutions, broadly available tools that allow unskilled fraudsters to perpetrate attacks, and the availability of detailed information on how to circumvent standard authentication and antifraud mechanisms as key threats to today’s financial institutions. Because of the increased number and severity of the threats, the FFIEC believes the guidance it gave in 2005 needed to be reinforced and strengthened.

The FFIEC has maintained from the start that security controls should be chosen based on results from a thorough risk assessment. The guidance recommends conducting a risk assessment not only at the initial deployment of a service, but also when threats change (e.g., known attack methods, identified vulnerabilities in mechanisms), when customer types and behavior change (e.g., increases in user sophistication or unanticipated increase in use of the service), when features of the service change (e.g., higher transaction limits or more automation), and after incidents (e.g., identity theft or fraud).

It stands to reason that an assessment of the risk of low-frequency, low-value consumer transactions would pose less a risk to financial institutions and their customers than commercial transactions that occur at high frequency or involve large sums of money.

Consequently, the FFIEC recommends increasing the strength of authentication mechanism as the assessed risk rises. And consistent with its previous recommendations, it continues to recommend multifactor authentication for high-risk transactions. However, in recognition of some of the high-profile compromises that have occurred in the past few years, the guidance points out that virtually every authentication mechanism can be compromised. It even goes as far as to say that specific techniques recommended in 2006 are vulnerable to attack. The punch line of the guidance is that organizations shouldn’t rely entirely on a single authentication method to protect them. Good security is based on layered defenses that consist of both technical and business mechanisms. The report lists various layered mechanisms (which will be discussed in more detail in a future post), but identifies two customer situations where these layers are necessary: account registration (and initial authentication) and transfer of funds to other parties. This shouldn’t surprise anyone in the financial community because these two activities are the easiest to perpetrate fraud.

The FFIEC guidance is an excellent short paper on the threat landscape, the effectiveness of popular authentication methods, and the need for layered defenses, particularly in specific types of customer interactions and transactions. Every security professional should seriously consider the advice the FFIEC provides.

Richard Mackey is vice president of consulting at SystemExperts Corp.