KYC is a domain of enormous risk and, hence, investment. Banks and fintechs are now exploring this challenge and blockchain could help to minimise risk. The adoption of blockchain technology could lead to the reduction of AML and KYC costs thanks to its cross-institution client verification capability, as well as its effectiveness in monitoring and analysing data required for AML and KYC checks. The speed and ease allows participants to obtain useful and quality information makes blockchain very appealing to regulators, banks and law enforcement agencies around the world.

KYC and AML in financial industry powered by blockchain tech

Among others, know your customer and anti-money laundering are potential blockchain use cases for blockchain technology.

Currently, institutions offering financial or professional services are obliged to follow time-consuming and expensive practices for each new customer.  With blockchain, the verification of a client or the legality of a transaction could take place just once, with the final result cryptographically stored in a blockchain.

Organisations such us banks or administration services providers would be able to get rid of the multistep AML and KYC processes as they would have the option to access a distributed database that would provide them with the final results of those processes.

More specifically, all of the information related to a client would become available to organizations with the appropriate permissions via a distributed database that would be considered a single source of “truth.”

The benefits of bringing blockchain technology into KYC:

• KYC help prove the identity of the customer, with details like source of funds, business interests, history, and also monitor the progress along the way.

• Reduced operational costs for banks through not having to KYC-check every customer (if they’ve already been checked and given a digital identity), and fewer operational staff needed for handling false positives

• Increased security through near real-time distribution of updated KYC documentation, verified digital identities, and the opportunity to share, in near real-time, fraudulent transaction details
• Increased transparency for regulators as both the immutability of the blockchain, and the opportunity for regulators to have nodes on Blockchain networks, support the ability to get a full, transparent audit trail of all transactions
• Enhanced customer experience through only having to submit documentation once, increased security (less opportunity for identity theft), and fewer transactions being flagged as false positives and stalling transaction flows. In due course, a digital identity could be used across many industries, not just for financial transactions
• Reduced operational costs for banks through not having to KYC-check every customer (if they’ve already been checked and given a digital identity), and fewer operational staff needed for handling false positives
• Increased security through near real-time distribution of updated KYC documentation, verified digital identities, and the opportunity to share, in near real-time, fraudulent transaction details
• Increased transparency for regulators as both the immutability of the blockchain, and the opportunity for regulators to have nodes on Blockchain networks, support the ability to get a full, transparent audit trail of all transactions