The hidden VOI risks that every broker needs to know

The strict social distancing rules brought on by COVID-19 have seen brokers and lenders across the country race to digitalise their systems and processes. Video conferencing has been a valuable tool to include in the rather integral component of client meetings.

But when it comes to brokers verifying their client’s identity through video call, co-founder of MaxID Fraser Todd says there are risks involved that many brokers may not be adequately informed about.

What is the VOI Standard?

When it comes to verifying a person’s identity, there are a specific set of procedural requirements and certifications that need to be applied in order to satisfy the VOI Standard set out by THE Australian Registrars' National Electronic Conveyancing Council (ARNECC).

Put simply, the VOI Standard requires the borrower to physically meet with the person tasked with verifying that individual’s identity in order that original identity documentation can be sighted and confirmed as relating to the borrower.

As is often the case, a broker may be appointed by the lender to act as the lender’s Identity Agent to apply this VOI Standard by meeting the borrower in person.

“In a historical sense, when a broker meets in person with the borrower and they’re acting as the Identity Agent of the lender, then the VOI Standard can be satisfied,” says Todd.

“If the broker is using a video conference call to meet with the borrower, they cannot satisfy the VOI Standard.

“The regulatory position and guidance is clear and I think there is big misunderstanding in the market about that. It’s not abundantly clear to a big chunk of the market that the VOI Standard hasn’t changed.”

Why the confusion?

With a raft of VOI products and options now promoted to brokers as a safe alternative to meeting face to face, it is mindboggling to consider that the VOI Standard hasn’t actually changed since COVID-19.

According to Todd, on March 19, 2020, the regulatory body ARNECC released a statement that “has been variously interpreted by the mortgage market as a change or relaxation of the rules”.

In this update, the regulator stated:

“While the [VOI] Standard requires a face-to-face in person interview, compliance with the [VOI] Standard is not mandatory … A [Mortgagee] can verify the identity of their client or customer in a way that constitutes reasonable steps … For example, in the current COVID-19 environment [Mortgagee’s] might like to consider using video technology as part of the verification of identity process.”

However, according to ARNECC’s long standing guidance on VOI:

“Where the [VOI] Standard is not used and there is a dispute, the [Mortgagee] … will be required to establish that the method used to verify the identity of a Person constituted “taking reasonable steps” in the particular circumstances.”

“Accordingly, where the [VOI] Standard is not being used a [Mortgagee] may consider that use of video technology, such as Skype or FaceTime, is useful in the particular circumstances.”

“However, its use should be considered by the [Mortgagee] who will have to justify that, in the circumstances of that particular verification of identity, use of video technology and any other measures used, constitute the taking of reasonable steps.”

“ARNECC notes that video technology may be manipulated or forged, therefore caution is recommended. The use of this technology is at the discretion and risk of the [Mortgagee]…”

In other words, while a broker can use video call technology to verify a client’s identity, the use of this does not meet the VOI Standard – and therefore the risk involved when the broker makes a declaration in relation to the identity of the borrower may fall squarely in the lap of the broker.

“Where the identity verification procedures applied do not meet the VOI Standard, the specific circumstances, any technology used, the records kept and detailed reasons why and how the broker exercised vigilance and wasn’t suspicious of fraud may be brought under rigorous examination to determine whether they were ‘reasonable steps’,” says Todd.

“The burden for a broker could be significant – and in relation to a loan involving any identity fraud, unenviable, at best.” 

The tricky thing about “reasonable steps”

Ultimately, whether or not non-VOI Standard compliant procedures constitute “reasonable steps” can only be determined in a court of law.

And the other tricky thing is that the concept of “reasonable steps” is not defined and could only be considered on a case by case basis.

According to Todd, if a broker is acting as an Identity Agent of a lender, and they haven’t applied the VOI Standard to verify the borrower’s identity, they are taking on a potentially large burden and risk.

He says in the case where identity fraud has occurred, it becomes a difficult argument to make that the broker took “reasonable steps” to verify a person’s identity if those steps didn’t prevent the fraud from occurring.

If the VOI Standard was applied at the time, then the steps taken are deemed to have constituted “reasonable steps” regardless of whether an identity fraud has occurred. Todd says this small but important nuance about whether the VOI Standard was applied could literally be the million-dollar question.   

“Where the banks or the lender is making the broker responsible for identity verification, there may be either or both a contractual obligation on the broker or a duty of care that the broker is relied upon to discharge,” Todd explains.

 “If a broker does something that falls short of either their contractual obligations or the standard of care required and has not applied the VOI Standard then the broker is taking on a risk position for themselves.”

What “safe harbour” solutions are available?

There have been a flood of products and services to the market claiming to support the identity verification requirements of brokers and lenders. What doesn’t seem as clear is whether those products and services meet the requirements of the VOI Standard to create a VOI “safe harbour” for the lender and brokers. 

The risk associated with verification of identity is taken by someone whenever the VOI Standard is not applied. What is even less clear is whether it is the broker or the product or service provider being used that takes the risk.    

Todd says MaxID’s VOI Standard solution removes this risk from the broker. By acting as the Identity Agent of the lender, MaxID takes on the identity verification risk so the broker doesn’t have to.

“MaxID’s sophisticated legal and technology services allow any individual acceptable to MaxID to assist with the process,” he says.

“Critically, given the current social distancing requirements, the in-person face to face interview can be conducted at home or at a location of the borrower’s choice together with someone they trust rather than a stranger or the broker.”

Many lenders allow borrowers to have their identity verified by an Identity Agent other than the broker, such as MaxID, Australia Post or ZipID. Todd says that MaxID (an Australian law practice) provides its legal services as the Identity Agent of the lender.

“It’s the same legal concept that other Identity Agents use, but as a law practice, the way our services are delivered is more flexible for lenders and their borrowers.”

“Our technology systems have to be very sophisticated so that when we provide a legal certification that the identity has been verified in accordance with the VOI Standard, the broker doesn’t have to be involved in identity verification at all.”

Liberty takes action to provide VOI Standard solution

After launching publicly in 2018, MaxID has been adopted by several lenders including Liberty, Columbus Capital and 86 400.

Todd adds “As a law practice we have to respect our client’s confidentiality but we are happy that a number of our lender clients have been so vocal about how we are supporting their businesses, their clients and their broker distribution channels.”  

According to Liberty’s Group Sales Manager John Mohnacheff, a digital verification of identify solution was something the lender had begun investigating well before COVID-19.

“We successfully completed a pilot of MaxID’s identity verification services for home loans in 2019. Having already trialled MaxID, we knew it could be rolled out quickly and would help our brokers to improve customer experience and remove the task for brokers – allowing them to focus on finding the right solutions for customers,” Mohnacheff says.

“The solution doesn’t only provide VOI but helps with broker Know Your Customer requirements, such as anti-fraud standards, so brokers know that are meeting these regulations and compliance standards each time they process a deal digitally with Liberty.

“We know that social distancing has posed challenges to the way many brokers normally do business. Which is why we made it our priority to adapt quickly, to allow brokers to continue to work with customers during this challenging time and help those most in need.”