- Can improve the experience of on-boarding customers and reduce inefficiencies and costs
- Reduces the duplication of information and manual checks for both banks and customers
OCBC Bank, HSBC and Mitsubishi UFJ Financial Group (MUFG), together with the Infocomm Media Development Authority (IMDA), has become the first consortium in Southeast Asia to successfully complete a proof-of-concept for a Know Your Customer (KYC) blockchain.
This development raises the possibility of using blockchain technology to make one of the most complex and highly-regulated of financial processes more efficient and secured, thereby combating anti-money laundering (AML) and the financing of terrorism (CFT).
HSBC Singapore Financial Crime Compliance head Beaver Chua, said, “Financial crime has in the past had connotations of being ‘low impact’ but this belies the devastating effect it has on people and societies: it threatens livelihoods, ruins companies and bankrupts individuals. In the fight against financial crime, banks play a key role and sharing information is vital.”
“The MAS has spoken about the importance for Singapore to ‘work smarter’ in how it fights financial crime in areas like banks’ approach to their ‘Know Your Customer’ due diligence and through its use of technology.
“The launch of this KYC platform is an accumulation of all of these aims: collaboration, innovation and crime prevention, and HSBC is delighted to have been able to partner in this initiative.”
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 – running on a Distributed Ledger Technology (DLT) platform which enables structured information to be recorded, accessed and shared across a distributed network using advanced cryptography – allows banks to collect, validate and share customer information – with the customer’s consent – accurately, efficiently and in a secured manner.
This vastly reduces the duplication of information and manual checks for both banks and customers, while enhancing the quality of the customer information that is stored.
Customers’ information encrypted on the shared ledger can be easily validated by referring to government registries, tax authorities and credit bureaus.
Banks can also store secured digital records of the validation process on the shared KYC platform to streamline auditing and regulatory reporting.
Infocomm Media Development Authority chief executive Tan Kiat How, said, “IMDA supports the ambitious use of technologies to transform businesses and create value to citizens. This willingness to experiment is crucial in achieving our vision of a dynamic digital economy for a Smart Nation.
“Revamping the KYC process using blockchain technology is one such example. We are heartened that financial institutions are developing innovative Fintech solutions to improve productivity and deliver a better experience to their customers.”
The prototype’s performance was tested between February and May 2017 for its functionality, scalability and security.
It remained stable even with a high volume of information flow, was resistant to tampering by third parties and maintained confidentiality by permitting access to the ledger’s information only with legitimate authentication.
OCBC Bank Business Transformation and Fintech and Innovation Group e-business head Pranav Seth, said, “This partnership fans the spirit of cooperation among competitors as well as regulatory and government bodies, and we hope this will help foster and inspire more of such collaborative innovation initiatives.
“Our pioneering efforts have resulted in a KYC process that will not only enhance customer convenience, but will improve the industry’s operating efficiencies while reducing financial fraud and crime.”
“MUFG has a well-established global innovation network focused on harnessing the group’s expertise in innovation to transform the way our clients do business. In Singapore, we are proud to participate in various Fintech initiatives such as this redesign of existing KYC processes using DLT, and we look forward to successfully developing a platform that enhances transparency, trust and reliability amongst banks and their customers,” said Michael Truter, deputy general manager, Asian Systems Office, MUFG’s banking entity, The Bank of Tokyo-Mitsubishi UFJ, Ltd.
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