ImprovingKYCdataacquisition:AstΓategicdataexchangemodel

capgeruruinvent

Knowyourcustomer(KYC)hastraditionallybeen

ahighlydocument-drivenprocess,requiring

corporationstosubmitextensivepaperworkto

multiplefinancialinstitutions.However,withchangingtechnologyandregulatoryexpectationsandtheneedforgreaterefficiency,theindustryisleaningtowardsadata-drivenmodel.Inthisnewparadigm,real-time,structured,andvalidateddataplaysacriticalrolein

enhancingcompliance,reducingmanualintervention,andimprovingoperationalefficiency.

ToobtainKYCdata,corporateinvestmentbanks

(CIBs)havetwoapproaches.First,theycanmanuallyconnectwithmultipleregistries,regulatorybodies,andexchangewebsitestocollectdata.Thisisa

laboriousandinconsistentprocessthatdemands

significantresources.Oranalternatemethodisto

utilizepremiumdataaggregatorslikeMoody’s,D&B,Markit,Refinitiv,etc.,whichoffer70to80percentoftheKYCrequirementsfromverifiedsourcesinadigestibleformat.Byleveragingthisapproach,

theneedfordirectdataextractionfromnumeroussourcesisreducedsignificantly.Thisstreamlines

complianceeffortsandimprovesdataaccuracy.

Atthesametime,companiesmaintain11bankingrelationshipsonaverageandmustprovideatleast10keydocumentsperbankforcompliance.This

resultsin100to200KYCdocumentrequestsannually,causinginefficiencies,duplicationofeffort,andcompliancefatigue.

Thispaperintroducesastrategicdataexchange

modelthatisbuiltonaproof-of-workmechanism,

differentiatingitfromblockchain-basedKYCmodels.Inthisnewmodel,theclientprovidesreliabledatatotheproviderincaseofanygaps,leveragingtheCIB’sinfrastructureandinturnearnsincentivefromthe

CIB.TheCIBearnscreditfromthedataprovider,andthedataproviderbenefitsfromreducedlong-termdataacquisitioncosts.Incontrasttoblockchain-

basedKYCmodels,whichfrequentlystruggleduetofragmentedregulatoryacceptance,theinabilitytosupportmulti-jurisdictionalcompliance,andlackofstandardizedverification,thismodelprovidesacentralizedbutscalableapproach.

Byimplementingthismodel:

?CIBsloweroperationalcosts,improveKYCcompliance,andreducemanualverificationefforts.

?CompaniesreduceKYCfatiguebyminimizing

redundantdocumentsubmissions,leadingto

improvedefficiencyinbankingrelationshipsandtheyearnincentiveforsupplyinginformation.

?Dataaggregatorsenrichdatasetswith

directcorporateinput,enhancingtheirvaluepropositionandmarketcompetitivenessandreducingthecostofdataacquisition.

Withthegrowingcomplexityofregulatory

requirementsandtherisingcostofcompliance,

CIBsmustadoptinnovative,collaborativemodelstoenhanceefficiency.Thisdataexchangeframeworkpresentsascalable,cost-effectivesolutionthat

strengthensthefinancialecosystemwhile

positioningparticipatingbanksattheforefrontofdigitaltransformation.

2ImprovingKYCdataacquisition:Astrategicdataexchangemodel

3ImprovingKYCdataacquisition:Astrategicdataexchangemodel

Thechallenges:HighcostandfΓagmentation

Globalpremiumdataproviders,onaverage,invest

anestimated$50millionto$100millionannually

inacquiringandmaintaininghigh-qualitycorporatedata.Evenwithsuchinvestments,theystillfacedatagaps,requiringtheirclientstoconduct

manualverification.

Atthesametime,cumbersomeKYCexperiences

diminishoverallclientsatisfaction.Researchindicatesthatcompaniesspendanaverageof1,500hours

annuallyrespondingtoKYCrequests,leadingtoinefficienciesanddelaysinbusinesstransactions.

Exploringalternatives:KYCutilityfoΓblockchainsolutions

Blockchainisconsideredapotentialsolutionfor

simplifyingKYCprocesses.Byenablingdecentralized,tamper-proofrecords,blockchainseekstoestablishasingle,reusableKYCprofilethatfinancialinstitutionscansecurelyaccess.Thisapproachreducesduplicationofeffortandenhancestransparencybyensuringthat,onceverified,KYCdataremainsunchangeableand

traceable.Additionally,blockchainpromisestoprovidegreatersecuritybyusingcryptographicverification,

whichreducesthepossibilityofidentityfraudandunauthorizeddataaccess.

Nevertheless,despiteitspotential,blockchain-basedKYCmodelspresentseveraldrawbacks.

Regulatoryfragmentation:

Differentjurisdictionshavevaryingregulations,anddecentralizedKYCmodelsstrugglewith

cross-bordercomplianceduetothelackofstandardizedlegalframeworks.

Absenceofaunifiedtrustmechanism:

Withoutacentralverificationauthority,bankshesitatetorelyonthird-partyvalidateddata,reducingthecredibilityofblockchain-basedKYCrecords.

Highinfrastructurecosts:

Permissionedblockchainmodelsrequire

substantialinvestmentininfrastructure,

security,andmaintenance,makinglarge-scaleadoptioncostly.

Dataimmutabilityvs.privacyregulations:Blockchain’simmutabilityconflictswithdataprotectionlawslikeGDPR,whichmandatethe

abilitytomodifyordeleteuserdatauponrequest.

4ImprovingKYCdataacquisition:Astrategicdataexchangemodel

Acost-effectivealternative:ThestΓategicdataexchangemodel

Unliketraditionalblockchain-basedKYCmodels,

whichoftenstrugglewithscalabilityandcompliance,ourstrategicdataexchangemodeloffersamore

practicalandcost-effectiveapproach.Insteadof

relyingondistributedledgers,thismodelenablesastructuredandincentive-drivendata-sharing

framework.(Similarmodelshavebeensuccessfullyimplementedinvariousindustries,demonstratingtheireffectivenessandpracticality.)

Howitworks

Directdataprocurement:

TheCIBestablishesanexclusivedataacquisitionagreementwithapremiumvendor,optimizingcoststhroughbulkpurchasing.

Identifyingdatagaps:

WhengapsinKYCdataarise,thebankcollectstheinformationfromtheclientanddirects

theircorporateclientstosubmitthemissing

informationtothedataprovider.Banks

providetheinfrastructureforacentralizedyet

collaborativedataexchange.CompaniessubmitvalidateddatathroughanAPI-drivenmechanism,reducingredundancyanderror.

Proofofworkmechanism:

Corporateclientscontributevalidateddatato

enhancetheaggregator’srepositoryandearn

incentivefromthebank.Inreturn,thebankearnscreditsfromthevendor,whichcanbeusedto

acquireenhanceddatasets.

Dataqualityenhancement:

Asmorecompaniesparticipate,thedata

provider’srepositorybecomesincreasingly

comprehensive,reducingfuturegapsand

streamliningcomplianceacrosstheecosystem.

Clientprovidesverifiedinformationtodata

providerusingCIB’sinfrastructure

CIBrequestsmissingdatafromclient

Clientreceivesincentive

Otherinstitutionsreceiveverifiedandcompletedata

血$

CIBpurchasesdatafromdataproviders

A

CIBreceivescredit

>

Comparativeanalysisofablockchain-baseddecentralizedKYCsolutionandtheproof-of-workinspiredstrategicdataexchangemodeldata-sharingmechanism

5ImprovingKYCdataacquisition:Astrategicdataexchangemodel

Feature

Blockchainmodel

Strategicdataexchangemodel

Approach

DecentralizedKYCledgeronblockchain

Centralizedinfrastructurewithveri?eddataaggregation.Notjustutilitybut

clientsactivelycontributevalidateddata

Datacontrol

Customer-owned,storedonablockchainledger

Bank-controlled,withcorporateconsent-drivensubmissions

Compliance

Struggleswithregulatory

adoptionacrossjurisdictions

Designedforjurisdictionalcomplianceandregulatoryalignment

Dataveri?cation

Peer-to-peersharing,nosinglevalidationauthority

Veri?edbypremiumdata

aggregatorsandbanks

-

Cost

Highduetoblockchain

infrastructureandredundancy

Lowercostsviaincentive-baseddataenrichment

Adoptionchallenges

Bankshesitantduetorelianceonthird-partyblockchain

Easieradoptionasitleveragesexistingregulatoryframeworks

Interbankdatasharing

EnablesreusabilityofKYCdataacrossbanks

Nodirectinterbanksharing,butupdates?owthroughproviders

Operationalcomplexity

Requiresdecentralizedidentityveri?cationacrossmultiplebanks

Streamlinedprocesswherebanksmanageinfrastructureandvendorsverifydata

TheroleofdatacoalitionsinKYCoptimization

Industry-widecollaborationthroughdatacoalitionsplaysapivotalroleinenhancingKYCdataaccessibilityandstandardization.Bypoolingverifiedcorporate

KYCdata,banksandfinancialinstitutionscancreateasharedrepositorythatminimizesduplicationandimprovesdataaccuracyacrossthesector.Under

awell-governedframeworkwithproperconsentstructures,onceacorporationsubmitsitsverifieddata,itbecomesaccessibletomultiplebanks–

streamliningcomplianceeffortsandreducing

administrativeburdensforallstakeholders.A

singlebankprovidesthenecessaryinfrastructure,enablingotherinstitutionstoaccessupdated

datawithoutdirectinterbankexchanges,thereby

ensuringneutrality,preventingconflictsofinterest,andreinforcingregulatorycompliance.Ultimately,

financialinstitutions,regulators,andindustryplayersareworkingtowardsthesamegoal–efficient,

standardized,andsecureKYCprocesses.

6ImprovingKYCdataacquisition:Astrategicdataexchangemodel

Keybenefits

Thismodelwillimprovetheavailabilityandaccuracyofdataforbettercomplianceandefficiency.

DataaccuΓacy

95%80%Correct

Dataavailability

Available70%80%

Currentstate

Expectedbene?t

Costoptimizationforbanks:

Directpurchasingagreementslowerdata

acquisitioncosts,andthecredit-basedsystemoffsetsfutureexpendituresthroughvendordiscounts,drivingcostoptimizationforbanks.

EnhancedKYCdatacoverage:

Increasesdatareliabilitythroughcorporate-

verifieddata,andleveragespremiumaggregatorstoavoidthecomplexityandcostofbuilding

individualAPIconnectionstoregistries,regulators,andexchanges.

Reducedcomplianceburden:

CompaniesbenefitfromareducedcomplianceburdenbyavoidingrepetitiveKYCrequestsfrommultiplebanks,andasingledatasubmission

ensuresconsistencywhilereducing

reportingerrors.

Competitiveadvantageandoperationalefficiency:

Themodeloffersacompetitiveadvantagebyenhancingthebank’sabilitytomeetregulatoryrequirementsefficiently,whileimproveddataqualityacceleratescustomeronboardingandreducescompliancerisks.

Scalabilityandindustry-wideadoption:

Byinvolvingmultiplebanks,themodelcreatesanindustry-widestandardforKYCdatacollection,fosteringgreateradoptionandregulatory

acceptance.

7ImprovingKYCdataacquisition:Astrategicdataexchangemodel

Regulatoryandlegalconsiderations

Dataprivacyandcompliance:

Themodelmustcomplywithglobaldata

protectionlawssuchasGDPRandCCPA.Banks

anddatavendorsmustensurethatanycorporate-submitteddataisusedstrictlyforKYCpurposesandishandledwithexplicitconsent.

Validationandverificationstandards:

RegulatorsrequirethatallKYCdatabereliableandverifiable.Tomeetthisstandard,data

vendorsmustimplementrobustvalidation

mechanismstoensurethatcorporate-submitteddatameetsregulatoryrequirementsbeforebeingintegratedintodatasets.

Liabilityandaccountability:

Clearcontractualagreementsmustdefine

responsibilitiesamongbanks,datavendors,andcorporateparticipants.Banksshouldretaintherighttodisputeincorrectdatawhileensuring

companiesarenotunfairlypenalizedforminordiscrepancies.

Limitations

Whilethestrategicdataexchangemodeloffers

numerousbenefits,itsimplementationmayface

limitationsincertaincountriesduetoregulatory,

technological,andinfrastructuralchallenges.For

example,SingaporehasPDPA,astringentdata

protectionlawwhichrestrictsdatasharingand

storage.Additionally,lawsmayrequiredatato

bestoredwithinnationalborders,complicating

cross-borderdataintegration.Themodel’sreliance

onadvancedtechnologicalinfrastructurecanbe

challenginginregionswithlessdevelopedsystems,

andachievingwidespreadadoptionmaybedifficultinmarketsresistanttochange.Culturalandoperationaldifferencesalsoimpactthewillingnessofcompaniestoparticipateandsharedata,furtherlimitingthe

model’seffectiveness.

Overall,whilethemodelpresentsapromising

solutionforKYCdataacquisition,itsimplementationmustbecarefullytailoredtoaddressthespecific

regulatory,technological,andculturalcontextsofeachcountry.

8ImprovingKYCdataacquisition:Astrategicdataexchangemodel

Frameworkforimplementation

Monitoring&optimization

?Trackdataqualityimprovements

?Measurecostsavings

?Exploreadditionalpartnerships

Corporateonboarding

?Educatecorporateclientsonthe

bene?ts

?Createincentivestructures

?Streamlinesubmissions

Data

integration

?EstablishAPIconnectivity

?Implementdata

validationprotocols

?Initiatepilottesting

Strategy

andplanning

?Identifypremiumdataaggregatorpartners

?De?nescopeandregulatoryrequirements

?Assessinternaldatareadiness

ClosingRemarks

Thestrategicdataexchangemodelprovidesa

scalable,cost-effective,andcompliance-driven

solutionforKYCdataacquisition.Byfosteringa

collaborativeecosystemwherebanks,datavendors,andcorporateclientsactivelycontributeverified

data,themodelensuresacontinuouslyimprovingandresilientfinancialcomplianceframework.Inspiredbyblockchain’sproof-of-workprinciple,thisapproach

incentivizesparticipantstoenhancedataqualitywhilereducingredundanciesandoperationalinefficiencies.

Regulators,withadualincentivetomaintaindata

integrityandenhanceitscompleteness,playa

crucialroleinupholdingstandardsandenriching

thesharedrepository.Byimplementingthis

framework,corporateinvestmentbanksnotonlygainacompetitiveedgebutalsocontributetoamore

transparent,efficient,andself-sustainingfinancialecosystem,whereeveryparticipantplaysapositiveroleindrivingcomplianceandtrust.

Authors

HiloniShah

ManagingConsultant

hiloni-hitesh.shah@

FlorentPalayr