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Blockchain allows banking institutions to streamline their KYC obligations.
FREMONT, CA: Blockchain has widely been publicized as a disruptive technology that is capable of transforming several industries. While blockchain technology has already left some impact on the banking and financial sector, its true potential is yet to be totally realized. Compliance is one such aspect for the banking institutions that can potentially gain massively from the blockchain. While it’s obligatory for financial institutions to identify and develop a risk profile for each of their customers, it’s a daunting task at the same time. However, this can be easily achieved with the help of blockchain technology.
The conventional know-your-customer (KYC) systems may not be the best solution for banking institutions. For instance, a bank’s KYC, which is a critical part of client onboarding, may lose track of a suspicious transaction carried out by another financial institution due to lack of document validation. Such a situation may trigger legal complications for a bank. Blockchain not only overcomes the compliance issue but also propels transparency across the network that links various stakeholders.
Blockchain consists of a system of distributed ledgers where the data is accessible by all the participants in real-time. Such a capability can allow banking institutions to improve their KYC processes by promoting real-time information exchange among the stakeholders. The technology can effectively assist financial institutions such as credit unions, internet banks, central banks, investment firms, savings and loan associations, as well as mortgage companies.
Financial institutions can utilize the blockchain to provide people with digital identities. Further, the blockchain application will retain the data and enable digitally stored data to be duplicated across the network. The above system is feasible even if the data is outsourced from a third party and is managed by another party. Stakeholders will have complete privacy as they alone will have the authority to control the distribution of their personal information.
The enhanced level of transparency provided by blockchain makes it the most relevant technology for KYC as well as compliance purposes in the banking industry.
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