Why Credits is focusing on identity

Michael King

The regulators are increasingly setting the bar higher and higher in new due diligence, monitoring, trading and reporting requirements and it is highly likely that these together with new money laundering directives will force more cost and changes in procedures. To gain an understanding of the myriad of regulations facing financial services firms see the excellent website http://regtechfs.com/tag/kyc/

Research undertaken by regtechs shows that the costs of on boarding new clients can take up to 34 weeks and cost up to $25,000 per client, this surely is unsustainable?

In today’s  world where powerful smartphone technology is available, and more and more apps are being developed that are providing lower cost solutions to commerce and the movement of money, the barriers to entry for more and more financialservices are being eroded. Providing these services and many others are now requiring suppliers to demonstrate that they are compliant to both KYC and standard AML rules. For many, demonstrating KYC can significantly increase the costs and time for on boarding clients. If a business is reliant upon high volumes but low transactions costs traditional paper based KYC may make services unprofitable.

KYC and the Blockchain

The promise of Blockchain in its pure intellectual form is to enable digital peer-to-peer transactions to occur in a reliable manner, without the need for a traditional third party. In essence this could cut out banks and other financial service intermediaries entirely from the financial transaction process.

In theory, this allows digital innovators to step in and provide intermediary services at potentially a far lower cost than today. There are institutions such as Banks, Government agencies and others, who have powerful brands that emphasise trust and security. In my view it is the process that is broken not the “trust” and technology should be the enabler not the differentiator.

Leveraging new technology for KYC compliance

For many, KYC checks are a series of paper based and face to face interactions which are then transformed into a digital record. The issue is that all companies have to continually repeat the same process. Whilst the initial on boarding of an identity is likely to remain face to face, there is no real reasons why “trusted” institutions could not have a huge role to play to provide elements of KYC services.

In a digital age, common thinking seems to indicate that this would manifests itself as ‘proof of process’, a transaction can only be completed when there is irrefutable proof that prior mandatory processes have happened. These can be different depending on what type of transaction is being completed. Blockchain technology can provide this proof that, for example, all relevant KYC checks had been performed by a trusted (regulated) body at the time of the transaction – the digital equivalent of a notarised proof of identity. This could well mean extracting elements of “digital” identity from multiple permissioned blockchains to complete a single identity for that specific transaction and no other with the obvious protection from the fraud of copying identity.




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