Could a National KYC Registry Be in the Cards? Dimon's on Board
Don't look now, but the concept of a national know-your-customer registry just got a little closer to reality thanks to the backing of perhaps the most well-known U.S. banking executive.
JPMorgan Chase's Jamie Dimon this week openly embraced the idea of a shared database that banks could access to simplify the knotty chore of vetting customers or potential customers for anti-money-laundering and other risks. Banks could save an enormous amount of time and money by pooling their knowledge about consumers and businesses, Dimon said.
"Obviously it's still our job to analyze the data, but why do you have to go through this process 10 times?" the JPMorgan chairman and chief executive said Thursday at a Sanford Bernstein conference in New York, according to a transcript. "So it would reduce our cost. It would reduce your cost. It would reduce error rates. So there are things like that that we are going to figure out to try to drive down the cost, which we need to do."
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Dimon's comments echoed long-held frustrations by bankers, who often have to invest substantial resources in authenticating (and re-authenticating) customer information, legal records and reams of other data. Customers themselves often get frustrated with having to repeatedly provide the same data at different banks they do business with.
There have been several attempts to establish such registries. The industry-owned group Swift has one, and Clarient – a consortium of the Depository Trust & Clearing Corp. and six global banks -- formed one, too. Commercial companies like Thomson Reuters, Strevus and a joint venture between Markit and Genpact have created them as well.
But there is yet to be a national registry that can be accessed by all U.S. banks.
Still, many obstacles remain — with public opinion chief among them.
Consumer privacy concerns would be difficult to overcome, said Shirley Inscoe, a senior analyst with Aite Group.
"It can be helpful in making this a two-step process for banks, instead of a six- or eight-step process," she said. "But many people would resist the concept of a government- or private-industry-sponsored database of all Americans. I think it would require very unpopular legislation to be passed."
Inscoe also said the registry would be a prime target for hackers.
"You would have to be delusional to think there is anything that can be created that would be 100%, totally secure," she said. "Even the federal government can't keep people's data secure; they have had major data breaches in recent months."
But several blockchain companies believe that their technology can play a vital role. In theory, blockchain technology enables entities independent of each other to rely on shared, secure and auditable information. It could lend itself well to a system of widespread digital identity, they have said.
Gem, a startup in Venice, Calif., is focused on getting companies to share information via blockchain technology. Know-your-customer compliance would be a possible application of its services — bank users would be able to vet a customer by relying on the work another bank has already done.
Another company working in this area is London-based Credits.Vision, which is pursuing a blockchain that would connect other blockchains, both private ones being tested by banks and public ones like the one that powers bitcoin. This chain-of-chains could be, as company officials often describe it, a "golden record for identity."
Customers could upload their personal details in encrypted form once — whether to a bank, passport office, or telecom provider — and the identity could then be used in any other context.
"It's completely right that there is going to need to be a combination of more robust onboarding and verification processes of the underlying identity data, but that only works if you can de-duplicate the number of times a given individual or corporate [entity] needs to go through that process," said Nick Williamson, the founder and CEO of Credits.Vision.
"The promise of distributed ledgers is to be able to maintain the integrity of the data that results from that more robust onboarding process and then distribute it for use in different services or relationships," he said. "Once an entity has sufficiently proven their identity once, they should be able to reuse that proof when signing up for further services."
Yet Aite's Inscoe believes criminals will find a way to solve any technology.
Blockchain "might be secure today, but what about in two years?" she asked. "I think we've seen that if one person creates something, another person can break it."