Know Your Customer (KYC) and Anti-Money Laundering (AML) are a portion of the issues that give monetary organizations, for example, banks tough occasions. Agreeing to KYC and AML guidelines is over the top expensive and devours a great deal of time. This includes enormous measure of regulatory work that requires critical assets to get it going. Regardless of that, KYC and AML rules are critical in forestalling and following violations.
Blockchain is an immutable digital ledger that is programmed to record and store all financial transactions and any other important information in a permanent and verifiable manner. The recorded data is then shared among many computers, commonly known as “nodes”, which are distributed in the network. Blockchain uses a peer-to-peer network that enables parties involved to transact directly with each other, eliminating interference from intermediaries such as banks or lawyers. A blockchain is made up a continuously growing list of records called “blocks” that relies on cryptography to link and secure them. The technology underlying blockchains is what is referred to as blockchain technology.
How blockchain can assist with KYC and AML
Blockchain technology is one revolutionary technology that is expected to disrupt many industries including private and public sectors. It is the technology behind the success of cryptocurrencies. Thus, many have embraced it and are deploying it in their day-to-day running of the businesses. This technology ensures that everything of value that is performed digitally/online is safe and secure with minimum risks of hacking or manipulation. An example of such a use case is AML and KYC. Blockchain technology can be used to store the private and personal information used during KYC and AML compliance in a safe, secure and permanent way.
This can be made possible by doing this: A customer gives out all his or her personal information as required by the KYC and AML regulations. The information is then stored in one “block” that is to be encrypted and stored in a blockchain. Later, the customer is issued with a private key that acts as a “password” whenever any authorized person wants to view the stored information. So in case the customer visits financial institution to open a bank account or apply for a loan, all he or she needs to do is issue the password to the authorized officer in that particular financial institution. The officer will be able to view the clients’ information from the blockchain, upload it automatically in their systems, and be able to assist the customer within minutes.
Benefits of using blockchain in KYC and AML
There are several benefits that financial institutions (or any other institution that uses KYC and AML platforms in their business operations) can reap by adopting blockchain technology to help in KYC and AML compliance checks.
- It can help reduce cost. Creating a common KYC and AML blockchain registry that is to be used by all the financial institutions can speed up the onboarding process and reduce the cost for KYC compliance. After a customer signs in for the first time, thereafter they will only be required to produce the private keys to the authorized persons for them to access their information instead of starting the whole process again.
- It can reduce time wastage. Creating an intra-bank blockchain registry can help speed up processes in the institution. For instance, a customer may have a current account with the bank and would like to open a savings account with the same bank. Instead of repeating the whole process that was done while opening the current account, what is needed is for the customer to provide the passwords or the private keys to the person in charge of savings account opening, and within minutes he or she should have the account because all information that is needed can be accessed with a click of a button.
- Decentralized data. It is hard for any malicious person to manipulate the recorded data. To do so he or she must hack the whole blockchain, this is impossible because the information is distributed all over the network.
- Increases speed. Using blockchain technology enables faster processes as it works on a peer-to-peer network that reduces the steps that one has to go through to complete a financial transaction/process.
It is important to study new technology thoroughly before deploying it in your business operations. Do your research and know the Do’s and the Don’ts. Know what is expected of you in order to reap huge benefits from it.