Streamlining "Know Your Customer" (KYC) processes is among the key benefits of blockchain for the financial services industry. The distributed ledger functions as a common repository for client transaction activity history, and it is now being tested for KYC use.
A consortium consisting of a Singapore government body and several banks, including HSBC Holdings plc (HSBC) and Mitsubishi UFJ Financial Group, Inc. (MTU), has completed a "proof-of-concept" for a KYC blockchain. According to reports, it is the ASEAN region's first ever proof-of-concept for use of blockchain in a KYC project. The prototype was tested between February and May 2017 and worked without problems, even during "high-volume" information flows. In addition, it was secure and "resistant to third-party intervention." (See also: Banks Claim They're Building Blockchains. They're Not.)
The Singapore government is among an increasing number of organizations testing the utility of blockchain in streamlining KYC processes. For example, consulting firm Deloitte developed KYCStart (pronounced as Kick Start) earlier this year. The application claims to reduce onboarding and ongoing monitoring costs. Similarly, financial services firm R3 developed a proof-of-concept for a KYC registry for customer due diligence and determining a valid identity. For its part, Singapore, which already has a thriving financial services industry, is positioning itself as a hub for fintech innovation, and the current project puts it in a leadership position within Asia.
"Know Your Customer" regulations are expensive and cumbersome for banks but are necessary to meet Anti-Money Laundering (AML) requirements. A 2014 Deloitte study put the cost of AML at $10 billion. Blockchain offers a solution through its distributed ledger, which can be used to avoid duplication of effort between member banks and provides a common database of client transaction history. It can also help weed out criminal activity. For example, startups such as Chainanalysis and Identity Mind mine blockchain to identify transaction patterns. (See also: Blockchain Is Helping Change Government Services.)