Bank regulators seek more secure log-ons

BOSTON — Federal regulators will require banks to strengthen security for Internet customers through authentication that goes beyond mere user names and passwords, which have become too easy for criminals to exploit.

Bank Web sites are expected to adopt some form of “two-factor” authentication by the end of 2006, regulators with the Federal Financial Institutions Examination Council said in a letter to banks last week.

In two-factor authentication, customers must confirm their identities not only through something they know, like a PIN or password, but also with something they physically have, like a hardware token with numeric access codes that change every minute.

Other types of two-factor authentication include costlier hardware involving biometrics or “smart” cards that would be inserted into designated readers on a user’s computer.

The council also suggested that banks explore technology that can estimate a Web user’s physical location and compare it to the address on file.

The most common way of stealing consumers’ personal identity data and financial account credentials online, known as phishing, typically involves sending e-mails that direct unwitting users to phony Web sites. Data harvested at such sites is then used fraudulently.

The Anti-Phishing Working group, an industry association, reported 13,776 unique types of phishing attacks in August.

While some financial institutions have given their customers electronic password tokens, those have tended to be optional. Other banks have instituted password entry through mouse clicks instead of typing, a protection against keystroke-snooping programs.

But in general, the industry can do more to stop account fraud and identity theft, according to the financial institutions council — which includes the Federal Reserve; the Federal Deposit Insurance Corp.; the U.S. Comptroller; the Office of Thrift Supervision and the National Credit Union Administration.

“The agencies consider single-factor authentication, as the only control mechanism, to be inadequate for high-risk transactions involving access to customer information or the movement of information to other parties,” the council wrote. “Account fraud and identity theft are frequently the result of single-factor … authentication exploitation.”