One of the best things about working at IBM — and in the RegTech field in particular — is meeting daily with the engineers and developers who are driving technological innovation in the financial industry. Consider, for example, the blockchain space. While blockchain’s decentralized, distributed-ledger technology is most popularly known as the basis for cryptocurrencies such as bitcoin, among the thought leaders with whom I work this is only scratching the surface of the potential of blockchain for business. Innovators such as Alex Carmichael, COO of Promontory Financial Group Australasia, are expanding the frontiers of blockchain innovation into areas such as risk and compliance, anti-money laundering and know-your-customer (KYC).
Blockchain for KYC: A business problem and value proposition
While the distributed-ledger based technology of blockchain can be implemented in a public blockchain — as in the case of cryptocurrencies such as bitcoin — I believe an arguably more significant manifestation of this technology lies in private blockchains which can be implemented by large financial institutions.
Today, banks and large financial institutions around the world are struggling to meet the ever-increasing scale and rate of regulatory change. Processes for KYC compliance, in particular, are costly and time-consuming with the added, and significant, concern of the extraordinary fines for non-compliance today. Given this business problem context, the value proposition of blockchain for KYC becomes readily apparent.
Although the cost of KYC is a huge part of the motivation for sharing KYC information, the customer experience is an even bigger factor. Banking clients are constantly asked to provide the same information, over and over again. For corporations, this can be very tedious, given the amount of certified information and documents they need to provide. By sharing KYC information across banks, the burden can be reduce, translating to faster onboarding and less work for customers. One of the key aspects of Blockchain that fits well with this is its ability to allow the customer (individual or corporate) to dictate with whom they want to share information and for what purpose, without needing the banks to be involved in the middle. In our implementations, the customer can determine when they want a new bank to see information or documents that they’ve already shared, and the two banks don’t even have to be aware of each other within this interaction. Those types of capabilities are very difficult to achieve without using blockchain technology.
IBM driving innovation
IBM has been working with banks around the world on early stage shared KYC projects based on blockchain. In fact, in January 2018, IBM announced successful completion of the “Proof-of-Concept Blockchain-based Shared KYC” in collaboration with leading financial institutions such as Deutsche Bank and HSBC. The implications of this technology for the financial industry are enormous, as is clear from the IBM announcement:
“Banks will be able to use such a platform to enhance the customer experience, automate mandatory processes and eliminate duplication through harmonizing and sharing KYC information resulting in operational savings and, over time, reduced operational risk. The corporates also benefit from reduced paperwork by doing KYC once and sharing it with relevant financial institutions through a user-controlled consent model.”
The enhanced customer experience and cost savings offered by blockchain for KYC are significant. However, as the announcement also makes clear, the transparency of blockchain technology also empowers governance, risk and compliance across an organization:
“The governance of the shared KYC network will include regular certification of contributing banks to assess their compliance with the harmonized standards and provide transparency and confidence to the wider group of participating banks.”
Blockchain for business: A game-changing technology
I believe that it is in “blockchain for business” that we will see the full potential of blockchain realized as a game-changing technology. IBM innovators are working today — in collaboration with leading global financial institutions — to deliver the cost-savings, increased speed and reduced risk of blockchain for KYC within real-world business environments.
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