OCBC Bank, HSBC and the Mitsubishi UFJ Financial Group (MUFG), together with the Infocomm Media Development Authority of Singapore (IMDA), became the first consortium in south-east Asia to successfully complete a proof-of-concept for a Know Your Customer (KYC) blockchain.
KYC is one of the most complex and highly-regulated of financial processes and it plays a critical role in combating anti-money laundering (AML) and the financing of terrorism (CFT). This development opens the door to the possibility of using blockchain technology to make the process more efficient and secured.
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.
KYC is conducted individually by banks and customers are required 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 nature of the process also produces inconsistencies in the information being collected by banks. In addition, customer information is not promptly updated at times.
The KYC blockchain runs on a Distributed Ledger Technology (DLT) platform which enables structured information to be recorded, accessed and shared across a distributed network using advanced cryptography. It 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.
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.
Mr. Tan Kiat How, Chief Executive, Infocomm Media Development Authority 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."
"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," said Mr. Pranav Seth, Head of E-Business, Business Transformation and FinTech and Innovation Group, OCBC Bank.
Mr. Beaver Chua, Head of Financial Crime Compliance, HSBC Singapore commented, "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."
Mr. Michael Truter, Deputy General Manager, Asian Systems Office, MUFG’s banking entity, The Bank of Tokyo-Mitsubishi UFJ, Ltd. said, "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."