Block.One President Criticizes the Current KYC/AML Paradigm, Proposes Blockchain Solution
Rob Jesudason, the president of EOS software publisher Block.one, has written a Medium article in which he criticizes KYC and AML measures as they currently exist. Jesudason argues that KYC/AML procedures frequently fail to stop crime and place a burden on users without good reason. In short, he is taking an oppositional stance that is somewhat uncommon among industry leaders.
What is KYC/AML?
Know-Your-Customer (KYC) and Anti-Money Laundering (AML) regulations ensure that financial services agencies collect identity documents from their users. In theory, these procedures prevent crime and money laundering by allowing bad actors to be identified and stopped.
However, this is not the case in reality: Jesudason claims that KYC/AML systems are often hastily implemented in the face of regulatory pressure, and, as a result, do little to reduce crime. He cites the case of Denmark’s Danske Bank, which was recently found to have laundered 200 million euros. Apparently, employees colluded in the money laundering scheme and manipulated records despite the presence of KYC/AML policies.
Furthermore, KYC/AML is seen as a problem by decentralization advocates: identity checks can make access to essential services like banks and payment platforms an exclusive affair. Virtually all crypto exchanges now require KYC/AML identity checks, and the practice is spreading. This is directly in conflict with the mission of most crypto advocates, who hope to provide an economic system that is accessible to everyone.
Jesudason acknowledges this problem: “Most customers are honest individuals,” he says, but are “subject to onerous and constant checks.” He also notes that that KYC/AML measures can deprive users of services based on technicalities, such as their place of residence, and that KYC/AML is “at best, an unsatisfactory customer experience.”
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Not the End of KYC
All of this adds up to a bad look for KYC/AML regulations. However, Jesudason does not want to do away with the system altogether. Instead, he wants to fully integrate KYC/AML practices with the blockchain. This would allow users to maintain a universal identity across different platforms. It would also ensure that records and documents are not corrupted, thanks to the blockchain’s immutable properties.
Despite Jesudason’s endorsement, EOS’s role in managing identity on the blockchain remains unclear, as EOS doesn’t have an official identity platform at the moment. The realm of blockchain-based ID has been historically dominated by Civic and Ontology. Additionally, Microsoft has gotten on board with the idea, creating plenty of competition in this domain.
As such, EOS may not become directly involved with ID management. At the moment, Jesudason is primarily advocating for regulators to consider blockchain-based KYC/AML in general.
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