The proliferation of blockchain in the financial industry enables the firms to use it for KYC compliance.
FREMONT, CA: Blockchain has emerged as a disruptive technology that is transforming various industries. While the technology has already left some impact in the financial sphere, its true potential is yet to be fully realized. Compliance is one such aspect for the financial institutions that can potentially gain a lot from the blockchain. While it’s mandatory for financial institutions to identify and create a risk profile for each of their customers, it’s an uphill task too. However, this can be easily accomplished with the help of blockchain technology.
The traditional know-your-customer (KYC) systems may not be perfect for businesses. For instance, a financial firm’s KYC, which is a critical part of client onboarding, misses out on a suspicious transaction done by another financial institution due to lack of document validation. This situation may trigger legal complications. Blockchain not only addresses the compliance issue but also encourages transparency across the network containing various stakeholders.
Blockchain comprises a system of distributed ledgers where the data is available to all the participants in real-time. Such a capability can enable financial institutions to improve their KYC processes by encouraging real-time data exchange between the stakeholders. The technology can effectively aid financial institutions such as credit unions, central banks, internet banks, investment firms, savings and loan associations, and mortgage companies.
Financial institutions can leverage blockchain to provide people with a digitally stored identity. Further, the blockchain application will back up the data and enable digitally stored data to be replicated across the network. This system is feasible even if the data is outsourced and is managed by another party. Customers will have complete privacy as they alone will be able to control the distribution of their personal data.
The enhanced level of transparency offered by blockchain makes it the ideal technology for KYC and compliance purposes in the financial industry.
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