How blockchain can help enhance KYC/AML requirements
By Vanessa Malone
With the ever-increasing Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance requirements companies are facing in the financial services arena, deploying technology solutions to keep up has become more of a mandate than a recommendation.
Global penalties for financial institutions have reached $36 billion in AML, KYC, and sanction fines since the financial crisis, with 2019 alone reaching close to $10 billion.¹
One of the challenges is that KYC and AML procedures regulators put in place are not definitive. Most of the standards in place incorporate loose language and state that compliance programs should be “reasonably designed” to combat fraud, money laundering, market manipulation, etc.
This was done intentionally to prevent banks and financial institutions from doing the bare minimum, and to instead entice them to be thorough and stringent when developing and executing their compliance programs.
The downside to this is that compliance programs can vary based on a firm’s available resources and compliance officers’ interpretations of the proposed standards put in place by regulators.
Another downside is that the same advancements in technology that are enabling companies to comply with today’s compliance requirements are also making it easier for bad actors to take advantage of technology to hide poor intentions. This, in turn, has led regulators to come out with public statements and additional guidelines for companies to increase precautions. With all these requirements and updates, it can be difficult for financial institutions to keep up.
Banks and other financial institutions are making a large effort to simultaneously protect data, prevent fraud, and combat money laundering. But this all together can make onboarding more complex as approvals could be needed at different stages up the chain of command, while additional documents and verification could also slow down the onboarding time. Compliance could be accounted for, but at what cost to user acquisition and experience during the onboarding process?
Thanks to things like two-day shipping and one-click transaction processes, this expectation for speedy and efficient digital experiences has translated to users’ banking and investment interactions. Customers aren’t aware of the long list of compliance requirements your firm must follow. They care about a high-tech, high-touch experience from start to finish.
Here’s where blockchain technology comes into play. For investor/customer onboarding and account opening, blockchain-enabled technology solutions such as Horizon’s integrated KYC/AML onboarding solution maintain a user-friendly process while adhering and adapting to the regulatory landscape.
Creating a digital, immutable, and timestamped record of a user’s data has incredible implications. From first touch to last, they can be assured that they are receiving an on-brand, transparent and intuitive process that was built to protect their data.
Horizon’s compliance-first methodology has always worked to keep in step with today’s regulatory landscape and make educated guesses as to where it is headed, which we’ve had success in thus far. Our KYC/AML software solutions KYCware and AMLCop already work to keep regulated entities in line with increasing compliance demands, whether it be for their exchanges or general client onboarding processes.
Users are taken through advanced ID, document, and identity verification technology including anti-gaming features, a Machine Readable Zone ‘MRZ’ scanner and liveness detection, the interface is intuitive and adaptable. For example the forms auto-adjust depending on a users jurisdiction and regulatory requirements in order to maintain a personalized, yet compliant, investment process.
Once submitted, user data is automatically screened against a proprietary database of global sanctions, politically exposed persons (PEPs), watchlists, and bad actor blockchain wallets. To make the data collection process secure and organized, a hashed record of all submissions, scans, clearances and other transactions are recorded on the Ethereum public blockchain. This ensures transparency and protection for both the user and the firm.
To see how Horizon’s solutions can seamlessly integrate into your customer onboarding experience, please reach the team at firstname.lastname@example.org. For more information, please visit https://kycware.com/ or https://amlcop.com.