Stronger Identity and API Security for Regulated Industries

In today’s digital economy, industries such as banking, healthcare, and government face a unique challenge: balancing innovation with security and compliance. As organizations modernize their digital services and open their systems to third-party applications, the risk of data breaches, fraud, and regulatory violations grows. For highly regulated sectors, protecting customer identities and securing APIs is not just an IT concern - it’s a business-critical priority.

This is where modern identity and security standards like OpenID Financial-grade API (FAPI) and OAuth 2.0 play a vital role. Designed to safeguard sensitive information and transactions, these protocols establish a robust framework for secure data sharing, user authentication, and authorization across ecosystems. They enable organizations to build trust, ensure regulatory compliance, and deliver seamless digital experiences without compromising on safety.

By strengthening both identity and API security, regulated industries can unlock new opportunities in areas such as open banking, digital healthcare platforms, and citizen services. More importantly, they can do so while meeting strict compliance requirements and maintaining the confidence of their customers.

OpenID Financial-grade API (FAPI)

OpenID Financial-grade API (FAPI) is a set of security and interoperability profiles developed by the OpenID Foundation. It was designed to meet the specific needs of the financial industry (e.g., open banking, digital payments, fintech apps) where sensitive data and transactions require high levels of security, privacy, and trust.

At its core, FAPI builds on OAuth 2.0 and OpenID Connect (OIDC) but tightens the rules and introduces stronger mechanisms to protect against attacks like:

• Token leakage

• Replay attacks

• Man-in-the-middle interception

• Phishing and authorization code injection

How does FAPI help?

• Enhanced security: Mandates stronger cryptographic algorithms, sender-constrained tokens, and modern authentication flows.

• Regulatory compliance: Provides a standard framework to meet regulatory requirements like PSD2 (Europe), CDR (Australia), or UK Open Banking.

• Interoperability: Ensures banks, fintech apps, and third-party providers can work together seamlessly across ecosystems.

• User protection: Increases confidence that users’ financial data and transactions are safe from fraud.

FAPI 1.0 and FAPI 2.0

FAPI has evolved over time, with FAPI 1.0 as the first stable release, followed by FAPI 2.0, which refines and simplifies the approach.

FAPI 1.0

• Split into Read-Only and Read/Write profiles.

• Read-Only: For accessing account information (no money movement).

• Read/Write: For high-risk operations like payments.

• Relies on OAuth 2.0 + OpenID Connect, with strong requirements such as:

• PKCE (Proof Key for Code Exchange)

• mTLS (Mutual TLS) or DPoP for sender-constrained tokens

• Nonce and state for replay protection

• Slightly complex and rigid, as it evolved under real-world open banking regulations.

FAPI 2.0

• A streamlined, unified profile (no split between read-only and read/write).

• Moves closer to OAuth 2.1 and modern best practices.

• Key improvements:

• Stronger focus on simplicity and usability.

• PAR (Pushed Authorization Requests) is mandatory (prevents request tampering).

• Clearer threat model and improved resistance against mix-up and phishing.

• Uses DPoP and mTLS more consistently for token binding.

• Greater alignment with newer industry trends beyond banking (e.g., identity assurance, APIs outside finance).

• Designed for future-proofing with extensibility in mind.

FAPI 2.0

Here’s a high-level overview of the key requirements for FAPI 2.0 Security Profile compliance:

1 - Strong Client Authentication

• Clients must prove their identity to the authorization server using a strong method. FAPI 2.0 allows:

• mTLS (Mutual TLS) - client authenticates using a certificate or use Private Key JWT - client signs a JWT with its private key to authenticate.

• DPoP (Demonstration of Proof-of-Possession) - can be used to bind access tokens to the client.

2 - Authorization Code Flow with PKCE

• Only the Authorization Code Flow is allowed for OAuth 2.0, along with Proof Key for Code Exchange (PKCE) to prevent code interception.

• Implicit and Resource Owner Password Credentials (ROPC) flows are disallowed.

3 - Sender-Constrained Access Tokens

• Access tokens must be bound to a client to prevent misuse if intercepted.

• Achieved via either mTLS-bound tokens or DPoP-bound tokens.

4 - Pushed Authorization Requests (PAR)

• Clients push authorization requests directly to the server instead of exposing parameters in the browser URL.

• Ensures confidentiality of sensitive request parameters like client_id, redirect_uri, and scope.

5 - JWT-Secured Authorization Requests (JAR)

• Optional but recommended: authorization requests are packaged in signed JWTs to guarantee integrity and authenticity.

6 - Short-Lived Authorization Codes and Tokens

• Authorization codes must be short-lived and single-use.

• Access tokens and refresh tokens should also have limited lifetimes to reduce exposure risk.

7 - Strict Redirect URI Validation

• Only exact, pre-registered redirect URIs are allowed.

• Wildcards or dynamic URIs are prohibited to prevent open redirect attacks.

8 - ID Token and Claims Integrity

• ID tokens must follow OIDC standards.

• Include claims like s_hash to prevent authorization code substitution attacks.

• Must be signed with a valid key; encryption is recommended for high-sensitivity use cases.

9 - Disallowed Weak or Unsafe Flows

• Implicit grant is not allowed.

• Client credentials or ROPC flows for end-user authentication are prohibited.

• Tokens cannot be sent in URL query parameters.

10 - Optional: Additional Security Enhancements

• Multi-Factor Authentication (MFA) can be enforced.

• Revocation endpoints for tokens.

• Secure session management and logout.

Highly Regulated Identity with Auth0

Auth0’s Highly Regulated Identity (HRI) suite is designed to support stringent security requirements in regulated industries like banking, healthcare, and financial services where sensitive transactions, user data, and compliance matter most. As part of HRI, Auth0 offers advanced features aligning with the Financial-grade API (FAPI) standards, including the latest FAPI 2.0 Security Profile along with FAPI 1 Advanced profiles.

Auth0 supports FAPI 1 Advanced, certified for two specific enforcement profiles:

• PAR (Pushed Auuthorization Requests) with Private Key JWT authentication

• PAR (Pushed Auuthorization Requests) with mTLS (Mutual TLS) authentication

These align with FAPI 1’s advanced security requirements, ensuring that applications adhere to high standards of confidentiality, integrity, and authenticity.

Auth0 has also adopted and certified itself against the newer FAPI 2.0 Security Profile, which enhances API security for high-stakes customer interactions. FAPI 2.0 improves interoperability, simplifies developer experience, and introduces advanced controls like non-repudiation and replay protection.

Core Capabilities and Protections in HRI (FAPI Compliance)

Front-Channel Security

• Pushed Authorization Requests (PAR) - clients push authorization request data directly to Auth0’s backend endpoint, avoiding front-channel exposure of sensitive parameters.

• JWT-Secured Authorization Request (JAR) - authorization parameters are wrapped in a signed (and optionally encrypted) JWT, strengthening integrity and enabling non-repudiation.

Access Token Protection

• JWE (JSON Web Encryption) - Auth0 can issue encrypted access tokens to prevent exposure of sensitive authorization data in transit or in logs

Strong Client (Application) Authentication

• Private Key JWT - applications authenticate by signing a JWT with their private key, never sending shared secrets over the network.

• OAuth 2.0 mTLS - applications present a TLS client certificate when talking to Auth0. The certificate is authenticated (CA-issued or self-signed), offering strong, mutual authentication.

Token Binding / Sender Constraining

• With mTLS or Demonstrating Proof-of-Possession (DPoP), Auth0 can bind access tokens to the client’s certificate (token binding). Even if a token is intercepted, it's unusable without the matching certificate.

Learn more about Auth0 Highly Regulated Identity from this practical overview video:

Summary

In today’s highly regulated landscape, adopting robust standards like OpenID FAPI 1 and 2, combined with solutions such as Auth0’s Highly Regulated Identity Suite, empowers organizations to secure APIs, protect sensitive data, and maintain compliance with confidence. By prioritizing strong identity and API security, businesses can not only mitigate risks but also build trust with customers and partners in an increasingly complex digital environment.