Numerous businesses in the financial services and insurance sectors around the world are using blockchain for Know Your Client (KYC) and Anti-Money Laundering Laws (AML) compliance needs.
Individual spending on KYC and AML compliance can reach up to $500 million per year for some businesses. As compliance rules become more complex and penalties evolve to be more punitive, the expense of meeting these needs will continue growing.
System inefficiency is one of the most significant drivers of cost for KYC and AML today. These programs are usually put on paper, requiring substantial levels of human input. That means financial institutions are duplicating the required work.
Blockchain can solve this problem while it improves the efficiency of the transactions that take place.
Why Blockchain is Useful for KYC and AML
Financial institutions do not usually share KYC and AML information with one another. Many of them fail to share this data among the different teams within the same organization.
When transactions involve multiple banks, then each financial institution will spend resources independently to validate the client data. There is no cooperation within this sector to share the information that comes from these activities.
Some financial institutions do not even have a central internal database that can collect the KYC and AML data for their clients.
Blockchain is useful here because it improves the efficiency of information movement. Clients no longer need to submit their KYC data multiple times when applying for services, which enhances the speed and efficiency of business while reducing costs.
It will also reduce the duplication of compliance efforts across multiple financial institutions that serve the same customer. The transparency of blockchain allows numerous users to examine the details of the transaction to ensure its validity. That means fewer costs for false positives that get flagged in the system.
The Value of Blockchain for KYC and AML
BIS Research reports that the cost of compliance could be reduced by up to 90% when adopting blockchain tech for KYC and AML. That means the total savings could reach $8 billion per year if every financial institution were to implement this approach.
New products are under development in the financial industry that take advantage of blockchain’s benefits for KYC and AML as well. The transparency of the distributed ledger will improve communication and reporting because violations are detected, reported, and mitigated with greater speed.
More violations can be detected with blockchain’s AML emphasis as well.
Civic uses a secure identity ecosystem that allows users to protect their identity while staying in control of their data. It provides an on-demand solution that satisfies KYC requirements by scanning and verifying identity documents. It leverages third-party providers in the Identity.com marketplace to validate data with blockchain attestations. Then everything stores locally on the mobile device of the users.
By building a global public blockchain, financial institutions will help to create a comprehensive level of trust. It will reduce issues with repetition so that there are fewer problems with unnecessary work. This process will then lead to a stronger customer support system in the future.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.
Media Contact
Company Name: Deltec International Group
Contact Person: Media Manager
Email:Send Email
Phone: 242 302 4100
Country: Bahamas
Website: https://www.deltecbank.com/
