Financial institutions are struggling to keep up with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements because of increasing regulatory complexity and more discerning consumer preferences. In 2017 alone, financial institutions reported a 400 percent increase in regulatory headcount yet still cited KYC and onboarding as the most significant challenges in remaining compliant.
In 2019, 12 of the world’s top 50 banks received fines for KYC, AML, or sanction related violations with total fines across all financial institutions increasing more than 160 percent. At the same time, customers are increasingly wary of sharing personal information following a series of large data breaches, including the 2017 hack of Equifax that exposed personal information on over 143 million Americans. Pew Research found that 81 percent of Americans believe the risks created by companies collecting personal data outweigh the benefits.
In response, many institutions are exploring a new decentralized approach based on distributed ledger technology (DLT) to break the cycle of increasing complexity and costs while giving customers more control over their data. By transforming the way organizations and customers share data, decentralized identity allows financial institutions to reduce and mutualize the costs associated with KYC while creating a better customer experience that protects privacy and reduces friction.