Financial innovation company R3 and ten of its consortium member banks have successfully developed a proof-of-concept for a Know Your Customer (KYC) registry that addresses the challenges associated with satisfying regulatory requirements and allows identities to be managed by their owners.
BBVA, CIBC, ING, Intesa Sanpaolo, Natixis, Nordea, Northern Trust, Société Générale, UBS and US Bank worked together in R3's Lab and Research Centre over a three-month period to develop a shared KYC service proof-of-concept using distributed ledger technology to place control of an identity with its owner. The project simulated establishing the identity of both a legal entity and an individual using KYC data and identity attestations by third-parties, said a statement from R3.
KYC is an intrinsic element of modern day banking to prevent against fraud, corruption and money laundering, however, inconsistent standards, long turnaround times and duplicated processes have created inefficiencies in the existing model. Additionally, increasing complexity and rapidly rising costs are putting a strain on customer on-boarding processes. A recent study conducted by Thomson Reuters shows that some financial institutions are spending up to $500m annually on ensuring compliance with KYC and customer due diligence.
The successful creation of a shared KYC service on R3's Corda platform would allow participants to create and manage their own identities including relevant documentation. They can then permission other participants to access this identity for client onboarding and KYC purposes. For additional validation, they can request authoritative participants for attestations against the identity. Corda's approach to sharing data, whereby only those with a need to see it will have access, addresses any concerns around data privacy and security that may arise when sharing identity details, it said.
The proof-of-concept demonstrated how distributed ledger technology can help banks fulfil basic KYC requirements of new customer onboarding while providing increased transparency, security and cost-efficiencies. In addition, it provided bank clients with a single interface for managing their global identity, which in turn simplifies and streamlines the onboarding process.
Six of the banks involved contributed code to the project, which saw participants working across five different time zones. The proof-of-concept was developed in R3's lab environment, the R3 Lab and Research Centre, which has quickly become a centre of gravity for collaborative research and testing of distributed ledger technologies.
David Rutter, CEO of R3, said: "The growing complexity and cost of KYC compliance requirements presents a major challenge for banks on-boarding new clients and is having a negative impact on those client relationships. Distributed ledger technology can provide a unified view of clients whilst also significantly reducing costs and time spent verifying identity."