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Why a New “Know Your Customer” Project Is Critical to Blockchain
Simplifying Know Your Customer (KYC) processes is one of the key benefits of Blockchainfor the financial services sector. The distributed ledger It functions as a common repository for customer transaction history and is now being tested for KYC use.
A consortium composed of a Singapore government agency and several banks, including HSBC Holdings plc (HSBC Bank) and Mitsubishi UFJ Financial Group, Inc. (MTU), completed a proof-of-concept for a KYC blockchain. According to relationshipsand the ASEAN Region first ever proof-of-concept for the use of blockchain in a KYC project. The prototype was tested between February and May 2017 and worked flawlessly, even during “high volume” information flows. It was also secure and “resistant to third-party intervention.” (See also: Banks Claim They’re Building Blockchain. They’re Not)
The Singapore government is among a growing number of organizations testing the utility of blockchain in streamlining KYC processes. For example, consulting firm Deloitte developed KYCStart (pronounced Kick Start) earlier this year. The app claims to reduce onboarding and ongoing monitoring costs. Similarly, financial services firm R3 has developed a proof-of-concept for a KYC registry for customers due diligence and determine a valid identity. For its part, Singapore, which already has a thriving financial services sector, is positioning itself as a hub for financial technology innovation and the current project places it in a leadership position in Asia.
Know Your Customer regulations are expensive and cumbersome for banks, but they are necessary to meet anti-money laundering (AML) requirements. A 2014 Deloitte study estimated the cost of AML at $10 billion. Blockchain offers a solution through its distributed ledger, which can be used to avoid duplication of effort among member banks and provides a common database of customer transaction history. It can also help eliminate criminal activity. For example, startup How Chainanalysis and Identity Mind analyze the blockchain to identify transaction patterns.