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New KYC blockchain prototype announced

Chris Hamblin, Editor, London, 4 October 2017

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OCBC Bank, HSBC and Mitsubishi UFJ Financial Group (MUFG), together with Singapore's Infocomm Media Development Authority, claims to have become the first consortium in South East Asia to successfully complete a prototype for a Know Your Customer (KYC) blockchain.

The consortium refers to its achievement as a "proof of concept." It relishes the chance to use blockchain technology to make one of the most complex and highly-regulated of financial processes more efficient and secure. It is aiming its software at money laundering and the financing of terrorism together.

OCBC bank has stated: "The existing KYC process consists of submitting a set of identification documents each time an individual or corporate customer starts a new relationship with a bank. New relationships include opening an account, applying for a credit facility or buying an insurance policy.

"Currently, KYC is conducted individually by banks, requiring customers to provide the same information to different institutions. It is a manual and paper-based process that can take weeks, as resources are spent validating multiple physical documents to ascertain the identity of the customer. This is laborious and inefficient for both the bank and the customer. The manual process also gives rise to inconsistent information being collected by banks, and customer information not being promptly updated."

The KYC blockchain, its creators claim, runs on a distributed ledger which allows the compliance officer to record and gain access to structured information and then share it with people on a distributed network using advanced cryptography. It allows banks to collect, validate and share information about customers – with their consent – accurately and (if the blockchain encryption holds) in a secure manner. The consortium's members are hoping that this will reduces the duplication of information and manual checks for both banks and customers and will somehow - it does not say how - improve the information that it is storing. Once customers’ information is encrypted on the shared ledger, the banks (and the regulators) can validate it in the same way that everybody else does - by referring it to government registries, tax authorities and credit bureaux. Banks can also store secured digital records of the validation process on the shared KYC platform for the purposes of auditing and regulatory reporting.

The prototype’s performance was tested between February and May. It remained stable even with a high volume of information flowing through it and the consortium's members say that it was "resistant to tampering by third parties" - a mysterious phrase that leaves the door open to speculation about the quality of the encryption.

Some of the consortium's members, in extolling the co-operation that such a venture might engender among competitors (as well as governmental bodies such as regulators), seem to be anticipating the day when every bank and governmemnt authority confirms people's identities - or might obtain permission to do so - on a giant amalgamated blockchain ledger set up for KYC purposes. The Monetary Authority of Singapore does not appear to have been involved in the blockchain's development or even kept informed about it, but at least one of the banks believes that it approves of this kind of initiative. Nobody knows, however, when the finished product will go into use.

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