Know Your Customer's Voice

By Maria Trombly | Securities Industry News | March 1, 2004

March 1, 2004 - New technology allows identity verification over the telephone

At Barclays Capital, most customers communicate with the investment bank by telephone, and the familiar sound of a customer's voice is a basic line of defense against an illegitimate transaction. But there are signs that more sophisticated voice recognition techniques than the human ear may some day be the norm for the industry.

"Our customers are institutions that we know very well," said Stephen Morse, managing director and global head of compliance at Barclays Capital. "We generally have long-standing relationships with them. Our salespeople generally know the senior officers of the institutions they're doing business with."
Occasionally, Morse admits, a salesperson will talk to someone whose voice they don't recognize. But, if an invalid transaction is put through, it will be caught, he said.

"Investment bankers always like a belts-and-braces [suspenders] approach. After a transaction, we would exchange confirmations with the customer and make sure it's signed by an authorized signature. If something wasn't authorized, we'd catch it."

Technology is now available to verify a customer's identity by the sound of their voice, but Morse said that he isn't ready to roll it out yet. "I don't think that's a technology that I would see us utilizing at this stage," he said. "Although, our business is growing significantly across the globe, and I would never rule out any risk management platform at some point."

Instead, Morse said, Barclays currently screens customers carefully when they first open accounts. "We make sure we understand precisely the nature of their business, the origins of any capital they're looking to invest, and obtain third-party information which verifies precisely who they are," he said. "In opening an account, we also establish a customer's investment objectives and then monitor transactions with that customer against those objectives. That will enable us to quickly identify unusual or unexpected transactions."

While Barclays might so far be resisting the idea, other brokerages have already made the move to voice authentication--not just for their customers, but for their employees, as well. So far, the scale of the projects is limited, but early results seem positive.

AIM Investments, which handles more than 1.2 million annual calls for retirement plan/mutual fund offerings, now offers its customers the opportunity to get information and make transactions over the telephone, with the help of a voice-recognition system from Nuance Communications. The system, which asks customers to say their account numbers and personal identification numbers (PINs), also checks to see that their voice prints match those on record.

So far, some 2,000 customers have voluntarily opted to use the system, said Regina Carriere, a Nuance spokesperson. The voice-recognition system has resulted in a 20 percent reduction in call duration over the previous system, which required customers to enter their information using the telephone touchpad. In addition, the number of customers using the automated system went up by 15 percent.

"The tangible results--saved time and increased customer satisfaction--speak for themselves," said Jesse Dean, assistant VP of AIM Investment Services.

Dean said that AIM went with voice recognition to give customers a comprehensive, easy-to-use--and secure--way of accessing their accounts over the telephone.

And brokerages aren't just using voice authentication for customers, said Carriere.

A handful of Nuance customers, who have not given permission for their names to be released, are also using the system to identify employees. "Five brokerages are using it for PIN and password reset," she said.

Verifying that employees are who they say they are means that one employee can't get into another's account by calling the help desk and asking for the password to be reset. This can help protect against certain kinds of fraud and money laundering activity in which the crook has inside help. But it can also help brokerages experiment with voice authentication technology before rolling it out in wider applications.

Another brokerage is using voice authentication to allow its employees to dial a 1-800 human resources number to check the status of their 401Ks and other personal information. And yet another brokerage is using voice authentication when brokers call in to check up on the status of their customers' accounts, she added.

The brokers' assistants may have their voice prints on file as well, she said, for those accounts that they may need to access. In addition to limiting access to only the authorized brokers, the system also keeps a record of who called when, she added.

Verifying identity is important in the battle to prevent fraud and money laundering, said Alan Abel, global head of money laundering compliance services at New York, N.Y.-based PricewaterhouseCoopers LLP. "If criminals can get access to your account, they can make transactions you don't authorize," he said. "They might be able to deposit or move money into the account from an illegitimate source in order to launder it."

But identity verification is most critical when an account is first opened, Abel said. Money launderers usually use their own accounts, and, when they don't, they rarely use existing accounts, instead preferring to open new ones under fake or stolen identities.

Globalization is also putting pressure on brokerages to step up their anti-money laundering efforts, said Luigi Licari, VP of anti-money laundering surveillance at Amsterdam-based ABN AMRO Bank BV. "There are banks in the former Soviet Union that offer Internet banking to almost anybody. They never set eyes on the person; anybody can open an account, send a check in, and send money anywhere in the world."

To look ahead, companies must plan for "what-if" scenarios, Licari said. "We do that regularly, both in house, and at industry seminars," he said. "Those conversations are continually happening." He also advised that companies have good contacts with law enforcement agencies such as the IRS Criminal Investigations Division and the FBI.

But Licari, who along with Barclays uses monitoring software from Fairfax, Va.-based Mantas, said that such software is hindered by the fact that it looks backwards. It identifies possible threats--based on fraud methods that have already been identified--in trading patterns. Yet the fact is, money launderers constantly change the ways they move money as old avenues are closed down.

Many experts agreed that biometric identifications such as voice prints, facial scans, and fingerprints could help prevent the use of stolen identities on Wall Street. If biometric data was shared by financial firms or government agencies, these measures would be even more effective--but raise the specter of Big Brother. "I would say that it's a bit much of a centralized invasion of privacy," said Edward Wilson, partner at Venable, LLP, based in Washington, D.C.

Wilson, who has served as a general counsel in the U.S. Treasury Department, said that it's a thorny public policy issue. One problem with voiceprints in particular, he said, is that people might not be aware that their voices are being recorded for the purpose of identifying them. "When a fingerprint is taken, you know it's being done," he said.

He added that this is less of an issue when it comes to voice printing a company's own employees. "You could make that a condition of employment," he said, "Just as we do so many other things."

Don Temple, a money laundering expert at Mantas, who spent 26 years with the IRS, 15 of them hunting money launderers, said that they often open a number of accounts under different names in order to hide transactions.

"If I had face recognition or voice recognition, than it makes it more difficult to go into six branches of the same bank and open accounts using different names," Temple said. If banks and brokerages were able to share that identity data, prevention would be even more effective, he said. "But you'd probably get heck from the privacy people."

Meanwhile, Mantas already offers "link analysis," Temple added. That means that a company can look to see whether different accounts have things in common, such as telephone numbers, addresses or, for example, a common voice print.

Another company that can help brokerages match voiceprints and photos is FileNet Corp., which is already used by many Wall Street firms to manage unstructured data. It could really help brokerages get to know their clients, said David Cornelius, FileNet's VP for financial services solutions. For example, if federal agencies were to share biometric information about people on their watch lists, it would be easier to stop them from opening accounts under assumed names.

"The technology is certainly there and capable of doing it," he said. "The question is what the legalities are around sharing this stuff, or whether federal authorities will start releasing additional digital assets."