Blockchain companies seek to help banks combat cyber crime

Two Australian companies are developing blockchain strategies to help banks combat international money laundering and the financing of terrorism. Kyckr provides customers with real-time access to 153 business registers worldwide, which can be used by banks to meet their obligation to evidence the identity of every customer, known as the Know Your Customer rules. Identitii.com is working with token tracking technology in a system that allows both parties in a payment transaction to be verified in real time. The Identitii tokens could also be employed in a new payment messaging system.
Blockchain technology, which involves distributed data bases with unique identifiers for each transaction, was completely absent from a recent report on money laundering and combating the financing of terrorism by the Bank of International Settlements.

The final report of the BIS committee on payments and market infrastructure found that there has been a withdrawal from correspondent banking because of rising costs and uncertainty about far customer due diligence should go in order to meet regulatory compliance.

Huge fines

The withdrawal of correspondent banking services follows many high-profile fines imposed by regulators against banks for failing to meet their KYC obligations.

Over the past four years the following institutions have incurred the following fines and penalties for non-compliance with anti-money laundering and KYC obligations: HSBC $US1.9 billion, JP Morgan $US1.7 billion, Standard Chartered $US340 million, Clearstream Banking $US152 million, Barclays £72 milion, standard Bank pound 7 million, EFG Private Bank £4.2 million, State Bank of India Hong Kong branch $US1 million and Moneygram Payment Systems $459,000.

The BIS committee found that there is no standardisation in the type and format of information in different KYC utilities. It found that there is no requirement or existing facilties for the inclusion of uniuqe Legal Entity Identifier (LEI) codes.

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Cassidy, who is on a roadshow this week trying to raise $6 million, and regulators in the 80 countries where his company operates are all aiming to make banks maintain a live view of the customer.

"The reference (in the BIS report) to KYC utility providers such as Clarient, kyc.com and SWIFT suggests that they can provide real time view but they do not," Cassidy says.

"They provide a real time view from the information they store. The issue is that this information is not maintained live from the compliant sources with sufficient global spread to meet the needs of legislation and their banking clients KYC obligations."

Step change needed

Cassidy, who worked for many years for Consolidated Press Holdings, said he was not surprised that the BIS report left out any reference to blockchain.

"Having not reference to blockchain doesn't surprise me," he said.

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"The world of regulation is catching up with the world of technology and it really does need a step change to get there.

"I think that the blockchain standard will overtake the standards referred to in the BIS report - blockchain will become part of the everyday business vernacular."

The second Sydney-based company working towards helping banks meet their KYC obligations is Identitii.com.

It has a token tracking technology based on blockchain that allows both parties involved in a payment transaction to be verified in real time.

This fintech start-up is well placed to make a global impact because the services it offers are that the BIS says should be implemented to make the banking system more secure.

Ben Buckingham, vice president strategy and operations at Identiti.com, said his company's product solves the recommendation by the BIS in relation to information sharing.

The BIS report said one of the obstacles to information sharing is the national data privacy laws in different countries.

The Identitii.com token could also be used to carry the LEI which is in keeping with the BIS recommendation that LEIs be used in payment messages in correspondent banking.

Buckingham says that the Identitii tokens could also be used as a new payment messaging system.