A real remedy for phishing

Bruce Schneier has an excellent article in Wired about phishing.

"The actual problem to be solved is that of fraudulent transactions. Financial institutions make it too easy for a criminal to commit fraudulent transactions, and too difficult for the victims to clear their names. The institutions make a lot of money because it's easy to make a transaction, open an account, get a credit card and so on. For years I've written about how economic considerations affect security problems. They can put security countermeasures in place to prevent fraud, detect it quickly and allow victims to clear themselves. But all of that's expensive. And it's not worth it to them...

In economics, this is known as an externality: It's an effect of a business decision that is not borne by the person or organization making the decision. Financial institutions have no incentive to reduce those costs of identity theft because they don't bear them.

Push the responsibility -- all of it -- for identity theft onto the financial institutions, and phishing will go away... It will go away because the information a criminal can get from a phishing attack won't be enough for him to commit fraud -- because the companies won't stand for all those losses.

If there's one general precept of security policy that is universally true, it is that security works best when the entity that is in the best position to mitigate the risk is responsible for that risk. Making financial institutions responsible for losses due to phishing and identity theft is the only way to deal with the problem. And not just the direct financial losses -- they need to make it less painful to resolve identity theft issues, enabling people to truly clear their names and credit histories. Money to reimburse losses is cheap compared with the expense of redesigning their systems, but anything less won't work."