Blockchain-based KYC onboarding for financial institutions

Photo by Jonathan Cooper on Unsplash

Financial institutions have way more responsibilities than monitoring transactions and processing payments. One of the core obligations of FIs is to onboard customers and ensure their data is by regulatory requirements. The process of verifying customers’ risk and financial profiles is known as Know Your Customer (KYC).

The client’s business can be slowed down and the relationship is ultimately damaged by compliance programs that are often manual, fragmented and slow. As a result, customers may end their relationship due to a delayed KYC process.

Another major issue is that it’s rare for FIs to share KYC/AML information with each other, and they often don’t even share it among their own divisions. Thus, in situations where a client utilizes multiple banks or there are multiple banks involved in a transaction, each financial institution must verify the KYC/AML data of the client separately, without any collaboration or sharing of information between them.

FIs’ employees need to review and manually reconcile a substantial amount of paper documents in many aspects of the existing KYC/AML workflows between FIs and regulators because FIs are mandated to prepare and submit compliance reports to regulators. This results in significant labor costs increases the risk of human error, and frustrates the client.

Distributed ledger technology(DLT) makes it possible that once a customer completes the KYC process with one certain financial institution, it’ll not be necessary to conduct the same process again with another one.

There are several steps in the process of onboarding via DLT that are reviewed below.

The client uploads all the identification and other required documents on the customer’s profile.

FI executes KYC screening and approves whether the provided documents are acceptable.

Once FI approves KYC, it will be sent to an internal server and hash functions for verified documents are uploaded to the KYC blockchain.

This approach facilitates the secure sharing of a client’s KYC data both among multiple FIs and within the divisions of a single FI, utilizing a reliable and private DLT platform.

The described process can also simplify information exchange between FIs and regulators, enabling real-time compliance checks and reducing costs.