Sri Lanka's central bank begins work on blockchain-based shared KYC system

Quick Take

  • The Central Bank of Sri Lanka has begun developing a proof-of-concept (POC) for blockchain-based shared know-your-customer (KYC) system
  • It is aimed at improving the Asian country’s digital financial inclusion 

The Central Bank of Sri Lanka has begun developing a proof-of-concept (POC) for blockchain-based shared know-your-customer (KYC) system.

To that end, the central bank has partnered with three parties ⁠— local Sampath Bank along with the University of Colombo School of Computing, Sweden-based blockchain startup Norbloc AB, and local tech firms Yaala Labs and Linearsix — to develop the POC.

The project is aimed at improving the country's digital financial infrastructure. Central bank governor W. D. Lakshman said evaluating the feasibility of blockchain for a shared KYC system could "vastly" increase the digital financial inclusion of Sri Lankans.

"Shared KYC opens avenues to seek opportunities for increasing the access to financial services through digital and remote onboarding," he added.

In a shared KYC system, bank customers' identities are verified faster through a common database, which in turn helps them to trade financial instruments faster. But such systems have their own challenges, such as money laundering (if one bank has faulty KYC programs, it could affect other banks in the shared system). Other issues include regulatory (e.g. the EU General Data Protection Regulation requires customers' permission to share their personal data), and high costs for building a shared facility, among other challenges. 

However, Sri Lanka's central bank believes that having the POC for the shared KYC facility will "undoubtedly help advance financial services in the country."

The central bank initially announced its plan for the facility in December 2019. At the time, it invited local banks and IT companies to participate in the initiative voluntarily. It subsequently received applications from over 40 companies, including 17 foreign firms, and then finally selected the three applicants to develop the POC. The POC is expected to be completed in the next six to nine months.

In a similar development in 2016, R3 and a consortium of ten banks developed a POC for a shared KYC registry. Some notable banks involved in the POC were BBVA, ING, Northern Trust, Societe Generale, and UBS, among others.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.