Liability and Federated Identity: Much Ado About Nothing?

by Carol Coye Benson on November 14, 2003

in Carol Coye Benson, Writings

By Carol Coye Benson

As enterprises implement new identity management systems, interest grows
in federated identity. For small "circles of trust," existing
business relationships—and existing contractual frameworks—are
sufficient to build federated networks. But with eyes everywhere cast
on the opportunity to create larger circles of trust, what business frameworks
will be needed to support these large-scale federated networks?

While a multilateral business framework has many important aspects, liability
transfer is the 800-pound gorilla everyone wants to wrestle. In a nutshell,
liability transfer means that the identity provider, or authenticator,
financially backs its identity assertions, effectively saying to a relying
party, "I guarantee you this is Sally; if I’m wrong, I pay you."
I’m fascinated to hear how many people assume this is required—and
that it’s just a matter of the right industry working groups issuing the
appropriate rules.

I may be a lone voice here, but I just don’t see this happening. Clearly,
there will be situations where an identity provider assumes some form
of "identity liability." But these are apt to be very small
circles of trust where well-defined business relationships already exist.
What I question are identity guarantees in large-scale circles of trust,
where the link between the identity provider and the relying party is
arms length at best. Although it’s nice to think that the fuzziness of
the relationship demands a liability framework, it actually shows how
impossible it would be to create one.

I believe large-scale identity federations will all operate with explicit
disavowals of liability. The identity provider will, in essence, say to
other members of the federation: "I think this is the person who
claims to be Sally—for whatever it’s worth to you!" The lack
of liability behind that assertion isn’t good or bad; it’s just the way
it will probably work.

How Liability Transfer Works in Payment Networks

Why is this notion of identity liability—and its transference—so
impossible? To answer that, let’s look at how credit card networks transfer
liability from a merchant—the service provider who’s selling the
goods and taking the risk of accepting the credit card—to the card-issuing
bank. Three relevant characteristics of this network enable the transfer
of liability:

  • Transactions occurring on the network have a precise value metric—the
    purchase amount. This makes determining the liability associated with
    the transaction extremely easy. (Credit card networks are very careful
    to ensure that the liability is never expanded to include non-precise,
    contingent damages beyond the purchase amount.)
  • All network participants have agreed (with varying degrees of willingness,
    but that’s a different story!) to a significant body of operating rules
    that specify how the network operates and the circumstances that lead
    to the transference of liability for purchases—and its reversal
    when settling disputes.
  • The network participants share very high—although different—motivations
    to participate. The consumer gets ease of purchase and access to credit.
    The merchant gets the ability to sell with manageable risk. And the
    bank stands to earn very attractive profits from its card business—particularly
    those derived from the loans enabled by the card network.

These characteristics are, of course, tightly interrelated. The specific
metrics of the transaction are necessary for the operating rules to be
well understood and precise. The operating rules are necessary to manage
the risks incurred by all network participants. And the profits are necessary
to offset the costs of supporting the network and absorbing fraud.

But Does It Hold in Identity?

When we look at the world of identity federation, we see none of characteristics.
With very few exceptions, identity transactions have no precise value
metric—unless they’re purchase transactions, but then why do we need
another liability transference mechanism? The lack of precise metrics
means that practical operating rules specifying liability transfer can’t
be meaningful. Are all identity transactions deemed to be worth $100?
$1,000? Why? (People have discussed the idea of a dynamic negotiation
of liability levels during an identity assertion—but I can’t imagine
that working in reality.) Finally, the parties to an identity transaction
are unlikely to have motivations to participate in the network equal in
strength to those of participants in a credit card network. Certainly,
profits on the identity horizon aren’t comparable to card-lending profits
to support the costs of a liability transference network—much less
the potential fraud.

Other payments networks—from ATM to checking to ACH—show variations
of this model. Some provide liability transference, but generally in situations
where network rules allow the party assuming liability to tightly manage
their risks. And all of these networks have, of course, the precise value
metric of the actual transaction.

In the context of large-scale federated networks, the parallels to payments
networks collapse even further. In general, payment systems don’t inter-operate.
If a bank takes a payment out of one system and enters it into another,
the liabilities of a party to the first part of the transaction don’t
flow through to the party of the second part. If payments networks that
have existed in electronic form for many, many years haven’t yet figured
out inter-system liability transfer—or needed to—I doubt very
much that identity networks will. So, no, I don’t think there will be
"identity guarantees" in broad federated networks.

This isn’t to say that members of these networks won’t have responsibilities
to perform with due diligence what they claim to do, or that they’ll be
without liability if they make errors or commit fraud themselves. But
I think this will be sorted out among participants in the normal course
of business—in the courtroom or the backroom—and not by an established
framework for the federation.

Where’s the Motivation?

Let’s consider the issue from the point of view of the enterprise that
enjoys an established, authenticated relationship with a consumer—but
whose primary business is not being an identity provider. The new identity
protocols enable this enterprise to assert the identity of the consumer
to another enterprise that provides complementary services. The identity
provider is willing to do this either as a service to the (common) customer,
or to get compensation (from the service provider), or for some combination
of these motives. The identity provider has done its own form of due diligence
in establishing its authentication credential with the consumer in the
first place. It’s now interested in asserting the consumer’s identity
on to the service provider, but the service provider is suddenly asking
it to guarantee that assertion. What identity provider in its right mind
would agree to accept any serious degree of liability in association with
this? The company may be willing (indeed, should be willing) to disclose
the nature of the registration process it used at the point of issuing
an authentication credential. But should it agree to pay out cash if it’s
later shown that the process wasn’t used correctly for Sally? I don’t
think so.

There will, of course, continue to be "professional" identity
providers who are in the business of providing general-purpose identity
credentials—the PKI certificate providers are a clear example of
this. Some of them have flirted with warranties on identity, and even
have some policies in place. But if you look closely at their policies,
it quickly becomes clear that the warranties fall far short of the identity
guarantee that some dream of for federated identity. I don’t think these
organizations give us models to follow for federation.

Let’s Take Liability Off The Table

Many working groups—and some private companies—are beginning
to tackle some of these issues. The Center for Strategic and International
Studies (CSIS) is conducting meetings to stimulate more business ownership
of these topics, and to encourage the participation of industry verticals.

I think all of these groups will have more luck—and make more progress—on
the significant number of addressable issues (privacy issues and enrollment
procedures, for example) if they can accept the fact that liability is
a non-issue. Otherwise, they’ll be mired in endless working group meetings
trying to square the circle. A healthy dose of reasonable expectations
is the tonic these groups need to succeed.

It would be very useful if some of these groups provided the guidelines
that service providers will need to assess the quality of identity credentials
supplied by identity providers. But these guidelines will merely help
the service provider, who will still have to make the yes/no decisions
itself. The service provider, after all, is the consumer of the identity
transaction. And caveat emptor will still apply.

Publication History

This article orginally appeared in the November/December 2003 issue
of Digital ID World magizine. It appeared online on November 14, 2003.

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