Digital Identity With DLT Simplifies financial Compliance


Blockchain Enhancing Current Regulatory Processes

In this post the various aspects of digital object tracking are explored within the context of blockchain solutions applied to their unique financial markets. The following corporate entities are experimenting with  DLT in ways that allows their financial information to help lower friction and access new high risk markets, ultimately lowering costs for their services.

Digital Identity With DLT

Blockchain technology is currently being tested for identity fraud detection through the creation of distributed digital identity networks maintained by the financial ecosystem they service. This is because DLT offers the ability to streamline communication between partitioned databases that can rely on digital signatures to validate interactions between participants on the same ledger. 

Bluzelle Networks, a blockchain-based data storage start-up, in 2017 worked with a consortium of three banks in Singapore—HSBC, OCBC, and Mitsubishi UFJ Financial Group—to test a blockchain platform for Know-your-Customer (KYC) and its effects on internal costs of compliance. The project showed that a blockchain platform would improve efficiency, cut the risk of financial crime opportunities, and increase the interoperability of existing datasets all pointing towards the optimization of information sharing for data rich financial institutions utilizing DLT solutions.

Elsewhere, Norbloc, a Swedish start-up that builds regulatory applications on blockchain platforms, is working with Belgium-based infrastructure provider Isabel Group to build a platform to simplify identity management. Both examples show a continued demand for technology that makes sharing sensitive information over digital channels more effective in increasingly digitized financial systems.

Meanwhile in payments, Mastercard has patented a system for identity and credential protection and verification via blockchain. What does this mean? In the past, financial institutions were often required to make risk management decisions based on limited data, obtainable from a few brokerages and agencies. But in a future built on blockchain, information can be accessed in a compliant way when standardized business communications attached to transactions are the norm.

Digital identities are a great way to build the digital banking future consumers want, while leveraging the payment and identity information already in use by high risk industries.

In the current financial system, digital identity validation is a service provided by a third-party authority that utilizes public information based on previous interactions within a corporations technology stack, for instance an existing database  that tracks the money services attached to social media platforms digital identities.  

A large social networking company like Facebook may want to connect their platforms private user information with their own proprietary payment processing information to create a living KYC compliance engine. The recent development of the Libra project run from Facebook’s need to optimize their money services business practices when it comes to dealing with their users information in light of Europeans GDPR regulations is one aspect of digital identity experimentation that is creating discussions at every level of government.

Thanks to a combination of technological advances, including the increasing sophistication of smartphones, advances in cryptography, and the advent of the blockchain, it is now possible to build new systems around exchanging identity information such as social media, and existing payment datasets. 

Blockchain technology offers the potential for pooling large volumes of data that can be anonymized and protected by the ledger’s encryption protocols. Data carried on a distributed ledger could be accessed without explicit at-the- time permission (customer consent can be granted via pre-programed smart contracts). Information partners theoretically, could view data that has been uploaded by any bank in the financial network without worrying about the accuracy or regulatory parity of such data. The result should be faster decisions, more efficient processes, and the potential for a more informed credit allocation process.