Know Your Customer (KYC) is a vital element of Anti-Money Laundering (AML) regulations and compliance, and the banking and financial regulations around KYC grow more complex each year. In 2021, there was an unprecedented amount of online fraud as more businesses moved online to respond to the realities of the COVID-19 crisis. Regulators across the globe have implemented more stringent KYC & AML policies that require identity focus. Identity service providers can leverage new technologies like Accumulate’s Identity First blockchain to meet the demands of these policies cheaply.
As anyone working in an Identity Service Provider knows, complying with the KYC regulations in their own country is a feat in itself, but navigating the complex map of global regulations – which vary from country to country – is a Herculean task. Many companies like Acuant are leveraging state-of-the-art artificial intelligence systems to provide faster and more accurate KYC verification – including Acuant’s Video KYC, which can take a video call and confirm that a person’s face matches their ID on the spot.
Fewer Identity Service providers are building blockchain-based platforms, which is surprising given the anti-fraud capabilities built directly into the groundbreaking technology. Perhaps cryptocurrency, the most famous application of the blockchain, and its history with black markets have created an unfair stigma against blockchain technology in the banking sector. If this is the case, then the financial sector is missing out on a huge potential to cut the costs of KYC compliance. Cryptocurrency is just one of the incredible applications built on top of the blockchain’s distributed ledger system. There are a wealth of KYC & AML applications that can be built on top of a blockchain and leverage its innate capabilities to save a tremendous amount of money, computation resources, human work hours, and regulatory worry. This is doubly true if a developer utilizes the Accumulate blockchain, which was built with identity management and KYC in mind.
Difficulties With KYC Regulations Currently
Banks must conduct KYC checks to verify both the identity of their customers and that all of the activity they are engaged with is legal. KYC checks are a bulwark against money laundering and bribery, however, they are also an extremely costly operation – both in terms of money and human resources. This is due to the ongoing nature of KYC. Institutions are required to monitor their customer’s transactions on an ongoing basis, and the larger the client, the more scrutiny must be placed on their ongoing finances. Banks must also keep track of other information about their clients, such as their political affiliations to ensure that they are not bribing officials, whether they do business in countries where fraud is common, and more. This ongoing data gathering process is slow and labor-intensive.
This is difficult enough for major financial institutions, but smaller organizations truly feel the weight of the hours required for regulatory compliance. This can lead to situations where KYC & AML is neglected or even when processes are outright ignored. Over 10 billion dollars in fines are levied annually for failure to comply with AML regulations. If the cost of compliance was lower, it would be easier for these organizations to keep up with the regulations.
Several data privacy issues come into play with KYC regulations, as users often have to hand over large amounts of sensitive data which is often exposed to third parties during verification. Malicious actors have been increasingly gaining access to user data over the COVID-19 crisis, as more data is being shared virtually without proper cybersecurity measures.
Benefits of Using Blockchain Solutions for KYC
The financial industry needs a transparent, secure, and efficient data management solution for KYC that will support business on a global scale. The current processes are far too costly to be sustainable in the long term. From its inception, blockchain technology has been designed to prevent fraud in the financial sector. Blockchains can easily scale to match the data demands of the global banking industry and are capable of processing the tremendous amounts of data generated by financial transactions each day.
All records stored on the blockchain are immutable and encrypted. When user data is shared with a bank or third-party identity service, it comes stamped with a signature generated through public-key cryptography, which will verify that the user owns that data. An enterprise platform built on the blockchain would enable customers to securely share private information. An identity service provider would then be able to examine the money laundering risk profile of users on the platform. Even better, these providers would be better positioned to conduct ongoing KYC checks because, according to Nasdaq, “they can reuse KYC data on an individual from a prior check because their digital identity will include not only all of their KYC data, but also transaction history, preferences, and profile. Subsequent checks can verify existing investors’ data without having to disclose their full identity, creating a further layer of data protection.”
To fully realize the power of such a platform, identity service providers should leverage Accumulate’s identity-first blockchain.
Accumulate’s Identity First Blockchain Is The Best Blockchain To Build AML Platforms
Accumulate separates itself from the pack because its protocol is built around identity, like the ownership of a corporation, and lists of data owned by identities, like the data generated by the daily activities of each department in that corporation. Rather than storing data in non-human readable sections of the blockchain, such as an Ethereum address like 0xe2e3880095d133d341400b2b35c0195c7154ccfb, Accumulate would store that data at the URLesque address acc://Company. If a service provider wanted to access all of the records in the accounting department of the company, they would simply need access to keys for the records stored in acc://Company/i/Accounting. This makes the Accumulate blockchain much more user-friendly for identity verification purposes.
Additionally, the Accumulate blockchain allows for smart contracts, programmable agreements that execute automatically when conditions are met, to run off-chain. This means that an identity service provider could utilize data on the Accumulate blockchain to set up a smart contract with their normal tech stack that releases funds automatically when KYC verification is complete. It also means that if certain conditions were met, such as questionable political affiliations, the application could automatically request more information from the user and report them to regulators if they fail to comply.
Accumulate uses data keys to organize and index large data sets in a way that minimizes the carbon footprint of the data that it stores, and can perform 70,000 transactions a second – giving it lightning-fast speed for developers.
With regulations around KYC identify verification tightening around the globe, it is vital that Identity Service Providers and other financial institutions adopt blockchains like Accumulate to cut costs and make their lives easier.