Financial and capital markets use the KYC (Know Your Customer) system to identify “bad” customers and minimize money laundering, tax evasion, and terrorism financing.
Efforts to prevent money laundering and the financing of terrorism are costing the financial sector billions of dollars. Banks are also exposed to huge penalties for failure to follow KYC guidelines. Costs aside, KYC can delay transactions and lead to duplication of effort between banks.
Primechain™ Technologies, a blockchain company with the mission of building blockchains for a better world, has developed an open source solution for corporate KYC on the blockchain.
Primechain-eKYC is a permissioned blockchain for sharing corporate KYC records. Primechain-eKYC records are stored in the blockchain in an encrypted form and can only be viewed by entities that have been “whitelisted” by the issuer entity. This ensures data privacy and confidentiality while at the same time ensuring that records are shared only between entities that trust each other.
The source code and other instructions are available on github:
Currently, the project is built on Multichain. Soon the Hyperledger Sawtooth and Hyperledger Fabric versions will also be released.
B. Pain Points in KYC
Based on discussions with banks and financial institutions across the globe and analysis of relevant industry surveys and reports, we have identified the following pain points in the current KYC process:
- The absence of a common standard in the KYC documentation process.
- On-boarding a client takes several weeks.
- KYC does not end at on-boarding. It starts there. Banks are obligated to monitor and update changes to KYC data.
- KYC costs for financial institutions are huge, averaging millions of dollars a year.
- Corporates don’t report KYC changes on a proactive and regular basis.
- Banks don’t update their records on a proactive and regular basis.
- Duplication of effort involved in KYC. Companies have multiple relations with multiple banks and financial institutions and are required to provide the same information multiple times – to different banks and sometimes even to the same bank.
- KYC and customer due diligence systems are not usually connected to the transaction monitoring systems.
C. Benefits and Features of Blockchain Based eKYC
Some benefits and features of blockchain based eKYC are:
- Removes duplication of effort, automates processes and reduces compliance errors.
- Enables the distribution of encrypted updates to client information in real time.
- Provides the historical record of all compliance activities undertaken for each customer.
- Provides the historical record of all documents pertaining to each customer.
- Records can be used as evidence to prove to regulators that the bank has complied with all relevant regulations.
- Enables identification of entities attempting to create fraudulent histories.
- Enables data and records to be analyzed to spot criminal activities.
D. How Does It Work
Primechain-eKYC is a shared permissioned blockchain that has two types of nodes – Admin nodes and Member nodes. Admin nodes are responsible for permitting nodes operated by verified banks and financial institutions to connect to the Primechain-eKYC blockchain. Member nodes are operated by verified banks and financial institutions.
When a new record is uploaded to the blockchain, the following information must be provided:
- Corporate Identity Number (CIN) of the entity to which this document relates – This information is stored in the blockchain in plain text / un-encrypted form and cannot be changed.
- Document category – This information is stored in the blockchain in plain text / un-encrypted form and cannot be changed.
- Document type – This information is stored in the blockchain in plain text / un-encrypted form and cannot be changed.
- A brief description of the document – This information is stored in the blockchain in plain text / un-encrypted form and cannot be changed.
- The document – This document is stored in the blockchain in AES encrypted form and cannot be changed. The decryption key is stored in the uploaders dedicated private database and does NOT go into the blockchain. The key is shared only with whitelisted entities who choose to download the document. This document can be in pdf, word, excel, image or other formats.
Disclosure: The author is a co-founder of Primechain Technologies Pvt. Ltd.
Disclaimer: This is a press release. ICO or Token investments are full of speculative and market risks. This article is only for information purposes and not an investment advice. Please conduct your own thorough research and due diligence before investing.
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