Technology

Build An "Industry-Wide KYC Utility" On Blockchain, Says Singapore's Central Bank

Josh O'Neill, Assistant Editor, 12 October 2017

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Singapore's central bank and regulator is continuing to show how bullish it is on blockchain technology, citing its revolutionary powers for onboarding clients - a process that is loathed by most wealth managers.

The buzz around blockchain is becoming more audible by the day. 

The technology underpinning bitcoin and other crypto-currency transactions “has the potential to transform many industries and economic activities,” Ravi Menon, managing director of the Monetary Authority of Singapore, the city-state’s central bank and regulator, said in a keynote speech earlier this week. 

At the same time, Credit Suisse’s global head of software investment banking, James Disney, has said “the sky’s the limit” in terms of how blockchain technology can help streamline investment banking processes. 

A blockchain is a virtual distributed ledger of transactions shared peer-to-peer that can record ownership across a public network of computers rendered tamper-proof by advanced cryptography.

Singapore is bullish on blockchain, and this is evidenced by banks operating there. 

Last week, OCBC, two other Asian banks and a Singaporean regulator announced that they had developed a prototype for a know-your-customer (KYC) solution powered by blockchain technology. Meanwhile, the MAS has itself been testing whether cross-border payments could be carried out using a platform built on a blockchain after it had successfully carried out interbank payments using the technology. 

Although some money managers are mulling over blockchain, the technology has not yet revolutionised the wealth management industry, generally speaking. Implementing blockchain systems can be expensive, and private banks arguably do not have the spare capital that a universal or investment bank might have to toy around with such nascent technology. 

But this doesn’t mean it won’t have a material impact in the future.  

“Banks spend an inordinate amount of time and money on KYC, and yet struggle to effectively detect and deter money laundering, tax evasion, and other forms of illicit finance,” the MAS’ Menon said. “[Blockchain technology] brings about opportunities for a shared industry-wide KYC utility that can verify customers and transactions in a more efficient and robust manner.” 

In theory, it makes perfect sense.

KYC checks are carried out by all banks separately, placing the onus on each individual firm to guarantee clients and their funds are kosher. However, the process can often take weeks - even months - as it is laden with paperwork, with banks' time and resources being spent validating physical documentation.

Because all data inputted into a blockchain is shared with all parties connected to it simultaneously and in real time, it could be argued that the technology inherently has the potential to streamline KYC processes, as it self-audits any information that is recorded, accessed and shared.

Menon is not the first to notion that blockchain technology could be transformative for complying with KYC regulations; creating a so-called “single source of truth” storing all of a client’s KYC-compliant details accessible by all financial institutions has been talked about by blockchain aficionados for some time now. 

Earlier this year, Big Four firm EY said in its report Blockchain innovation in wealth and asset management that blockchain “presents the possibility of revolutionising” client onboarding for wealth managers.

“In today's world, potential clients must provide proof of identification, residency, marital status, sources of wealth, occupation, business interests and political ties,” the report said. “Going through this process can take days or weeks to collect and verify the data.”

Meanwhile in the US, Wall Street may not be big on bitcoin – the first and most well-known crypto-currency – but it is banking on blockchain to trim costs, manpower and time. 

Big banks, regulators and technology firms have pulled together to create blockchain consortiums, spending millions of dollars on blockchain-related projects in the hope that it could one day help shave billions off their balance sheets. 

Even though Jamie Dimon, JP Morgan’s chief executive, touted bitcoin as a “fraud”, his bank has spent millions exploring the potential uses of blockchain. 

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