Microsoft will offer smartphone makers a new anti-theft feature if they use Windows Phone 8.1 GDR2. The Reset Protection mode, when enabled, won't allow a thief access to the phone, even if he or she tries to hard reset the device or flash a new ROM on the smartphone.

The feature is describe by Microsoft in a post on its OEM development center site:

"Reset and reactivation protection – The stolen device cannot be reused by resetting or flashing the device. When a user performs a factory reset on the device, they will be asked to enter the Microsoft Account credentials that are associated with that device. Additionally, if the device is flashed with a new image and Reset Protection is turned on, the Microsoft Account credentials that were associated with that device is required to finish OOBE and use the device." "Anti-rollback protection – If Reset Protection is enabled, the stolen device cannot be flashed to an earlier version of the operating system that did not support Reset Protection."

If a legitimate smartphone owner forgets their Microsoft Account password after the device goes into Reset Protection mode, they can still ask their device manufacturer to request an unlock key from Microsoft.

We will point out that this feature must be enabled by OEMs on compatible devices when they are first made, so don't expect it to be available for the vast majority of Windows Phone products. At the moment, the GDR2 update is only available on the Lumia 640 and Lumia 640 XL, and there's no word on when, or even if, it will be released to other smartphones.

Source: Microsoft; Thanks to Aman for the tip!