How Blockchain Could Facilitate KYC Policies

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12.04.2016

There are lots of researches concerning the way blockchain may cut operational expenses, accelerate transactions and settle issues with KYC and AML regulations. However, the very issue of KYC is problematic both for crypto-industry itself and global finance.

Expenses for customer identification, anti-fraud efforts, and follow-up of such operations are truly colossal. The very procedure of KYC compliance may halt transactions for up to fifty days, let alone freezing of accounts and requirements to undergo identification at some remote office.

“The use of a distributed ledger system, such as a blockchain, however, could unlock advantages by  automating processes and thus reducing compliance errors. A blockchain-based registry would not only remove the duplication of effort in carrying out KYC checks, but the ledger would also enable encrypted updates to client details to be distributed to all banks in near real-time. In addition, the ledger would provide a historical record of all documents shared and compliance activities undertaken for each client. This record could be used to provide evidence that a bank has acted in accordance with the requirements placed upon it should regulators ask for clarification,” Deloitte’s report “Blockchain applications in banking” reads.

Meanwhile, BlockNotary team not only found a way to solve real business problems with blockchain, but also proactively implements and develops corresponding apps for financial institution.

BlockNotary‘s first practical application was in partnership with Russia-based payments system Pay-me this January. BlockNotary’s integration allows for identification of merchants willing to install a PoS terminal at their sales points. Earlier companies had to interview each customer in person, and have several levels of checking. Now, the customers are interviewed online, which significantly accelerates the identification procedure and reduces risks of dishonest usage of PoS terminals.

“Following BlockNotary’s integration, a merchant has only to undergo a little online interview, which generates the video’s hash. The resulting hash is then recorded on the blockchain, and thus a service obtains an immutable proof of the customer’s intent and their identification during the interview. If an identified customer is suspected for some reason, the video will be applicable in the course of investigation,” BlockNotary’s official blog reads.

 

Interview from Igor Barinov on Vimeo.

Crypto-exchanges could solve the identification problem in a similar manner. Currently they use traditional methods like uploading scanned ID’s or disclosing other personal data. Thus, exchanges could both settle disputable matters with banks and comply with laws of their country of incorporation.

One of Ukraine-based bitcoin exchanges has recently integrated BlockNotary solutions to identify their customers.

Another BlockNotary use-case employs somewhat similar identification method for p2p-crediting applications. In that case, a user requesting a loan, records the statement on camera, where he or she pronounces their name, specifies amount of the loan, purpose of the loan, and specifies the overall amount to be reimbursed, and time of repayment.

Thus, crediting becomes more decentralized, users get additional sources of trust, and administrators of a p2p-crediting platform may mitigate some risks related to dishonest usage of their application.

BlockNotary was developed by Igor Barinov, developer and entrepreneur, in late 2015. In March 2016, BlockNotary was selected for three-months mentorship at one of the biggest fintech accelerators, Plug and Play.

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