Pakistani banks resort to blockchain for their KYC 

Pakistani banks resort to blockchain for their KYC 

The Pakistan Banks’ Association (PBA), a collection of 31 traditional banks in the country, approved the development of a blockchain-based Know Your Customer (KYC) platform on March 2. According to the Daily Times, the PBA secured a project contract to construct Pakistan’s first blockchain-based national eKYC banking infrastructure. The member banks include international establishments such as the Industrial and Commercial Bank of China, Citibank and Deutsche Bank.

PBA Chairman, Mr Muhammad Aurangzeb, who is also President HBL, attended the ceremony, as did Mr Akhter Javed, Director BPRD, SBP; Mr Tawfiq Hussain, CEO PBA, the signatory for PBA; Mr Waqas Mirza, CEO Avanza Innovations; and Mr Omer Khan, CEO, Avanza Solutions (Pvt) Ltd, the signatory for Avanza.

Know Your Customer (KYC) is a collection of processes financial organisations use to verify a customer’s identification. KYC is the initial stage of Anti-Money Laundering (AML) due diligence, and it assists financial institutions in determining the risk level associated with a customer. KYC is also required for cryptocurrency exchanges to comply with AML requirements. Exchanges can assist in preventing illicit activities such as money laundering and terrorism funding by authenticating their clients’ identities.

Non-KYC trading is also possible, however, there are various risks involved with trading on a non-KYC exchange. Non-KYC exchanges are frequently less secure than KYC exchanges due to lax AML processes, making them more open to cyberattacks, fraud, and other criminal behaviour. Since they are smaller and serve a smaller user base, these exchanges sometimes have lesser liquidity than KYC exchanges, making it difficult to locate buyers or sellers when you wish to trade, resulting in greater costs. Non-KYC exchange rates are frequently higher than KYC exchange fees because they must cover the risk of fraud and other criminal behaviour.

The SPB will provide CBDC issuance licences to electronic money institutions. These groundbreaking measures demonstrate the SBP’s commitment to openness, technological adoption, and the modernization of Pakistan’s financial system claimed SBP Vice Governor Jameel Ahmad.

The Avanza Group has been charged with creating the “Consonance” blockchain-based eKYC platform, which will be utilised by member institutions to standardise and share client data over a decentralised and self-regulated network. Nonetheless, client information will be shared with consent, allowing banks to evaluate existing and potential customers.

This implementation will lead to an improvement in AML controls including boosting anti-money laundering skills while combating terror financing.  The blockchain platform will improve operational efficiencies. The platform will also result in efficiency at participating banks and an increase in customer experience, particularly during account opening, increasing financial inclusion.