Response to the publication by the DTI of a proposal on the licensing of trusted third-parties

Abstract


Neil McEvoy, a Director of the IT management consultancy Hyperion, prepared a detailed set of comments in response to the publication by the Department of Trade and Industry (DTI) of a proposal on the licensing of trusted third-parties (TTPs) and a request for comment. These comments were sent to the DTI and are reproduced here. ©Hyperion Systems Limited (1997).


Hyperion Credentials

Since our foundation in 1986, Hyperion has specialised in the specification and procurement of systems and networks to support secure financial transactions. This has been backed by thorough technical knowledge of cryptography, particularly asymmetric (public key) cryptography. One of our directors, Neil McEvoy, is credited with being the first European to implement the RSA algorithm, in a service he designed in 1982, which provided encrypted and signed file transfers over a multi-organisation wide area network.

Hyperion has specified and procured secure networks for Bank of England settlement services, including the Central Gilts Office, Central Moneymarket Office and CREST. These systems, collectively, settle tens of billions of pounds of transactions daily. We have assisted UK banks in the development of secure ATM and EFTPOS networks. We have contributed to British and ISO standards in this field.

Hyperion played a leading role in the specification and design of the Mondex electronic cash scheme. We were the first technical consultancy organisation to be consulted by National Westminster Bank and continue to provide the greatest external input to the NatWest team responsible for continued innovation in this field.

Since the foundation of Mondex International, we have assisted them with a number of tasks, including the ongoing education of member banks, and other service and manufacturing organisations, on how to construct secure commercial services based on the Mondex core products.

For a European telecommunications company, we have designed, and supervised the construction of, the first pilot service to utilise electronic purse technology to make purchases of digital goods over the Internet, and to withdraw and deposit digital money from/to bank accounts.

We are retained by a number of global hardware, software and telecommunications companies to advise on the use of smart cards to implement cryptographically secure identity and payment functions over the Internet.

We believe that we were the first company to publicise the potential of smart card based electronic cash schemes over the Internet and other networks (at the Worldwide Electronic Commerce conference, New York, January 1993). As a result of our vision and practical development management skills we are widely regarded one of Europe's leading electronic commerce consultancies.

Summary Comments

We can see no express benefit deriving from a government role in the regulation of trusted third party services (or any other service based on cryptography), but many dangers.

The only claimed benefits we can find in the paper relate either to the facilitation of the growth of electronic commerce in the UK or to help in the fight against crime and terrorism. We find both claims deeply implausible.

We can see no evidence that the growth of electronic commerce in the UK is hampered by lack of government regulation. In the words of the consultation paper itself: "Advances in the computing, telecommunications and creative sectors, combined with the worldwide explosion of electronic commerce are revolutionising the delivery and availability of information and services". The use of the present tense is illuminating. A recent report by Jupiter Communications justifies the use of 'explosion' by predicting online payments for items under $10 growing from $12M in 1996 to $76M in 1997 to $473M in 1998--in the absence of government intervention.

We can see no gain flowing to the forces of law and order from these proposals. Effectively unbreakable cryptography is already available to criminals, and is presumably widely used by them. This particular genie is out of the bottle. As with any technology, it can be used for good or ill.

Whilst the claimed benefits appear illusory, the dangers inherent in the proposals are manifest.

Firstly, there is an overt threat to individual liberty. As a matter of principle, we believe an individual (or for that matter a corporation) should be able to turn to any third party he chooses to help form an opinion as to the trustworthiness of some other individual (or corporation), and that any third party should be free to give such opinions. Imagine the moral outrage if the government sought to overturn this principal for every day (non-cyberspace) transactions! This is the effect of the proposed requirement for TTPs to be licensed.

The same thought experiment leads directly to another manifest danger; namely that a centralised, regulated system for the dissemination of trust in Cyberspace could not have the 'bandwidth' to disseminate trust in the same way that informal, loose, overlapping and unregulated networks do in '3-d space'. This widespread dissemination of trust has underpinned the United Kingdom's commercial success for centuries. Legislation on the lines proposed would prevent the projection of this successful informal system onto Cyberspace.

Access to the limited trust 'bandwidth' would of course be rationed by price. Licensed TTPs would justify high prices on the grounds of the expense of meeting onerous regulatory requirements. This leads to the danger of a society of information 'haves' and 'have nots'. On the provider side, regulatory schemes by their very nature discriminate in favour of established larger companies (with plenty of lobbyists, compliance officers, lawyers and (dare we say it) consultants to support their cause) and against smaller, potentially more innovative, enterprises.

Support for decentralised business models is one of the foundations of the Internet's astonishing success. The imposition in the United Kingdom of a centralised security superstructure on the Internet would all but strangle at birth UK electronic commerce, in much the same way that the Red Flag Act crippled the nascent British automotive industry. We believe this parallel to be quite striking--an ill-conceived piece of legislation, imposed at a very early stage in an industry's development, nullifying the very advantage offered by a new technology.

In conclusion, we believe there to be no clear benefits to the proposals. On the contrary, we believe they are morally wrong and would be damaging to the UK economy if implemented.

Allowing unlicensed TTPs freedom to operate in the UK would overcome both objections. The proposals to establish a licensing regime would then amount to no more than a potential waste of taxpayers' money.

Detailed Comments

Foreword, Paragraph 1

...ensure that everyone in the UK exploits the full potential of information and communication technologies

This sounds rather authoritarian! "...ensure that everyone in the UK is able to exploit..." would be a better turn of phrase. We believe that the proposals hinder rather than help this requirement. Those who do not trust the government would not have access to UK based 'TTPs' whom they actually trust. The few licensed TTPs would be able to charge large fees (and indeed would have to, to cover the cost of compliance), effectively disabling poorer people from participating in electronic commerce.

Foreword, Paragraph 4

"The UK is already a world leader in the telecommunication, broadcasting and multi media industries..."

...precisely because of the UK's relatively light regulatory regime in these areas.

Section I, Paragraph 1

...licensing and regulation of trusted third parties...

Trust has to be "in the eyes of the beholder". Whilst for some people, a government license may be a badge of trust, for others it may be quite the reverse! People must have the freedom to place their trust elsewhere, which means that everyone should have the freedom to assert their trustworthiness, backed up by track record, evaluation under other schemes, insurance cover or anything else which a user of TTP services may deem appropriate.

Section I, Paragraph 2

...the requirement to preserve the ability of intelligence and law enforcement agencies to fight serious crime and terrorism.

Insofar as this relates to the understanding of encrypted messages, the law enforcement agencies do not have this ability to preserve. The proposals inconvenience law abiding citizens whilst not preventing, or facilitating the detection of, criminal activity.

Section II, Paragraph 1

Advances in the computing, telecommunications and creative sectors, combined with the worldwide explosion of electronic commerce are revolutionising the delivery and availability of information and services.

The use of the present tense is illuminating. A recent report by Jupiter Communications justifies the use of 'explosion' by predicting online payments for items under $10 growing from $12M in 1996 to $76M in 1997 to $473M in 1998--in the absence of government intervention.

Section II, Paragraph 11

The UK is already a world leader in telecommunications, broadcasting and multimedia--benefiting from Government action to liberalise the market and promote competition.

Indeed. The TTP market is currently perfectly liberal and competitive. The proposals will constrain people's freedom to offer and subscribe to TTP services, and limit competition by raising barriers to entry.

Section II, Paragraph 12

...the Government has an important role to play in providing leadership in certain key areas...

Whilst one can only nitpick with the motherhood statements which follow the above preamble, the objectives can be better met without the proposed legislation. Naturally, the government has to decide for itself which TTPs to trust for its own purposes. This could be licensed TTPs or indeed an internal operation, run for example by the DTI.

Section II, Paragraph 14

...businesses ... have raised legitimate concerns about the adequacy of security measures...

...which businesses are perfectly capable of addressing for themselves.
Section IV, Paragraph 34

Such an infrastructure ... can be based on a hierarchy or network of certificate authorities ...

The operative word is 'can'. Other structures can also be postulated. Regulation should not seek to favour a particular model, which may prove to be sub-optimal in the long term. Rather, the market should decide.

Section IV, Paragraph 36

Private parties may also have legitimate reasons and a legal basis to obtain access to encrypted information.

The example requirements in the paper are very general (i.e. wider in scope than cryptography) and can be met by a variety of means, without the need for elaborate, licensed escrow schemes. For example, it is convenient for all concerned if all of our affairs are ordered in the event of our death. It is just as important for my solicitor to have access to the physical key to my filing cabinet containing my bank statements and share certificates, as to my private key to unlock secrets on my hard disk. Nobody has seen the need to license third parties to look after physical keys in this regard, far less to demand that such third parties make available such keys to law enforcement agencies. If there is a need for third parties to keep "back ups" of private keys, then the market will ensure that they spontaneously arise.

Section V, Paragraph 39

A user in the UK, under these proposals, would be free to choose their own TTP.

In the light of subsequent paragraphs outlawing unlicensed TTPs, this statement is insulting to the intelligence of the reader. The user's freedom to choose would be of the "any colour as long it's black" variety. Only a few, expensive TTPs, conforming to a single operational model, would be available.

Section V, Paragraph 40

The use of a TTP is dependent on the fundamental requirement that it is trusted by the entities it serves...

Quite so. But under the proposed scheme, all TTP users would be asked to place their trust in the government licensing regime, which is clearly unrealistic.

Section V, Paragraph 42

TTPs are being licensed to protect the consumer...

There are many mechanisms by which the consumer can protect himself; for example by relying on evaluation by bodies such as the Consumers' Association or reviews in specialist magazines (or on web sites) or by demanding indemnity insurance to a suitable level, etc. The possibilities of users evaluating TTPs using their own criteria and on any advice should not be removed.

Interoperability between different [encryption] products is not possible.

Manifestly untrue. For example there are several interoperable versions of PGP, SSL, etc.

Encrypted communication, therefore, will no longer be limited to governments and larger organisations.

It isn't now: many smaller organisations (including Hyperion) and individuals use encryption. PGP can be obtained for free or for a nominal sum and the "web of trust" method of distributing trust has been, for us at least, an entirely voluntary exercise. SSL encryption is built in to standard web browsers. 'Class A' certificates from Verisign Inc., which provide a level of assurance that the holder is the legitimate user of the e-mail address in the certificate, are available for free.

TTPs will allow UK Business to take advantage of secure electronic trading

Very probably: but this is not dependent upon a licensing scheme.

TTPs will be also be able to offer Data Recovery Services.

Quite so: also not dependent on a licensing scheme.

Products that are designed to operate within a TTP environment will be subjected to simpler export licence procedures

This is an arbitrary and unfair distinction to draw.

Use of licensed TTPs is voluntary...

...but alternatives are banned. The worst kind of Orwellian doublespeak!

UK taking a lead in very important area...

...but in the wrong direction!

Many countries agree with the UK...

This is presumably shorthand for "civil servants in many countries agree with civil servants in the UK".

Section VI, Paragraph 43

Positive Licensing Scheme

This certainly looks likely to create and sustain jobs...in the DTI !

Section VI, Paragraph 44

Either [rejected] arrangement could ... lead to the presence of unsuitable or incompetent TTPs

Elaborate regulatory regimes are no guarantee of competence or probity in regulated organisations: witness personal pension mis-selling and other financial scandals in regulated organisations.

Section VI, Paragraph 45

Organisations offering ... such services outside the UK will be required to be licensed

We can see no way of enforcing this requirement, which will place licensed UK-based TTPs at a competitive disadvantage in a global market.

Section VI, Paragraph 57

The legislation will give the Secretary of State discretion to determine appropriate licence conditions.

In practice therefore, civil servants will be free to make up rules they deem fit, free from parliamentary scrutiny.

Section VI, Paragraph 58

The DTI has been chosen as the initial authority...

This should create and preserve jobs in the DTI for years to come.

Section VI, Paragraph 59

Licence fees will be payable

This will represent just part of the unnecessary cost burden placed on UK licensed TTPs, placing them at a disadvantage to international competitors and effectively levying a tax on users of UK licensed TTPs.

Section VI, Paragraph 62

the Licensing Authority ... will need to be satisfied...

One can anticipate reams of documentation expanding on the stipulated criteria, as in, for example, the ITSEC criteria. Many of the criteria are by their nature subjective and decisions will therefore be arbitrary, for example on trustworthiness of directors and information security personnel. Neither it is obvious that the DTI is equipped to establish the "competence" of information security personnel, directors and management. The market alone should determine the relative importance of these and other criteria.

Section VI, Paragraph 68

Similarly, an employee offering cryptographic protection between its employees would not be covered by the legislation. However, should it decide to extend the protection service to its suppliers, then it would require a licence.

This stipulation is based on an employment model which is increasingly outmoded. For example our consultants, who have employment contracts with Hyperion, are frequently seconded on a medium-term basis to our clients, who generally treat them in most respects (for example access to networks and information services) as though they were their own employees. The above stipulation would prove highly impractical in such cases.

Section VI, Paragraph 72

The legislation will prohibit an organisation from offering or providing encryption services to the public without a licence

This is the core stipulation of the document and is an unwarranted restriction on personal and economic liberties and detrimental to the economy of the UK.

Prohibition will be irrespective of whether a charge is made for such services.

This stipulation seems particularly reprehensible to us. Translated to the world of pen and ink, it would require a person to be licensed before he/she verified someone's signature to his/her spouse! In the cryptographic sense, despite DTI public assurances to the contrary, this would severely disable PGP in the UK, since no-one would be free to sign public keys to securely 'introduce' two parties.

Section VI, Paragraph 83

...some forms of sanction will be required against those ... more seriously (sic), providing encryption services without a valid licence.

This does not seem to us, to quote Brideshead Revisited, to "rank high in the catalogue of mortal sins".

Section VI, Paragraph 84

The government seeks views on whether deliberate (and perhaps wilfully negligent) disclosure of a client's private encryption key should be a specific criminal offence, or whether existing civil and criminal sanctions would suffice.

A private encryption key is just a secret, and it seems to us there are already legal remedies against organisations which reveal their clients' secrets. We would soon be out of business if we revealed our clients' secrets!