Role of Blockchain in Transforming KYC Practices

By Sunil Sonkar
2 Min Read
Role of Blockchain in Transforming KYC Practices

Know Your Customer (KYC) is an important aspect in the financial industry and lately blockchain technology is becoming crucial to it. It is gaining significant attention due to its potential to enhance compliance and security measures. It is offering innovative solutions with respect to challenges faced from financial crimes.

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Manual processes often are equipped with struggles to manage the complexities of modern financial ecosystems. It thereafter leads to issues such as data siloes across fund distribution chains. But AI and blockchain technology can address these challenges seamlessly. The two technologies help in improving data accuracy as well as data visibility.

Blockchain enables the visualization and analysis of fund flows. This facilitates the detection of potential money laundering schemes as well as illicit activities. Such activities are usually untraceable by using traditional methods.

Wealth and asset management firms always seek enhancing data hygiene and simultaneously reducing risk of financial crime. It is said that blockchain automates and centralizes the onboarding, screening and monitoring processes. It also streamlines KYC checks on investors. The technology has decentralized and immutable nature and this provides a transparent and auditable ledger of transactions. This strengthens KYC procedures.

Blockchain technology can also enhance detection of sanctioned entities. Sanctioned entities increasingly utilize digital assets and this makes financial institutions face risks. Traditional investigations often are inefficient in identifying suspicious transactions which are associated with illicit activities. Blockchain data analysis enables the identification and tracking of suspicious patterns.

Lately, consumers are acceptance the digital identity verification method. Storage in digital wallets is growing too. The World Wide Web Consortium’s (W3C) verifiable credentials model exemplifies this shift. It enhances security and streamlines identity verification processes across financial services.

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