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Securing DLT-based KYC via randomised audits
Journal of Digital Banking,
6
(2),
181-192
(2021)
Abstract
Know Your Customer (KYC) is a costly and heavily regulated process that financial institutions are legally required to undertake to conduct business with their customers. Distributed Ledger Technology (DLT) can be used as a coordination mechanism for financial institutions to share KYC costs in a common jurisdiction. Previous techniques that use DLT to support the KYC process, perhaps unexpectedly, introduce a single point of failure in the system. Indeed, financial institutions are vulnerable to repercussions if a single institution makes an operational mistake during the onboarding stage. We tackle this problem by introducing a probabilistic mechanism, where some of the financial institutions involved need to independently repeat the KYC process in the form of a randomised audit. This novel approach mitigates the single point of failure of the previous DLT-based KYC designs and introduces a natural trade-off between the security of the KYC process and its cost efficiency. In our approach the audit probability can be either set as a global DLT parameter or be dependent on attributes associated with the particular client.
Keywords: KYC; DLT; Blockchain; RegTech; robustness; single point of failure; brittleness; machine learning
The full article is available to subscribers to the journal.
Author's Biography
Matus Drgon is a tech analyst at Barclays who recently earned an integrated Master’s degree in Computer Science at the University of Edinburgh. His previous work experience includes internships in the technological departments of ADL, Barclays, GSK and sfera. Matus is interested in new developments in distributed ledger technology, machine learning and their business applications.
Lamprini Georgiou is a PhD candidate at the University of Edinburgh School of Law. Her thesis focuses on financial regulation and FinTech and Regtech applications using DLT and machine learning technology. She holds an LL.M(R) in Innovation and Technology from the same university and an LL.B from the University of Athens. Before moving to the UK she worked in law firms in Athens as a private lawyer.
Aggelos Kiayias , FRSE, is Chair in cybersecurity and privacy and Director of the Blockchain Technology Laboratory at the University of Edinburgh. He is also the Chief Scientist at Blockchain technology company IOHK and Associate Professor of Cryptography and Security at the University of Athens. His research interests are in computer security, information security, applied cryptography and foundations of cryptography with a particular emphasis on Blockchain technologies and distributed systems, e-voting and secure multiparty protocols as well as privacy and identity management. He has received an ERC Starting Grant, a Marie Curie fellowship, an NSF Career Award and a Fulbright Fellowship. He holds a PhD from the City University of New York and is a graduate of the mathematics department of the University of Athens. He has more than 150 publications in journals and conference proceedings in the area. He has served as the programme chair of the Cryptographers’ Track of the RSA conference in 2011 and the Financial Cryptography and Data Security conference in 2017, as well as the general chair of Eurocrypt 2013. He also served as the programme chair of Real World Crypto Symposium 2020 and the Public-Key Cryptography Conference 2020. He is on the editorial boards of ACM Transactions on Privacy and Security and IEEE Transactions on Dependable and Secure Computing as well as on the advisory board of Cryptoeconomic Systems.
