KYC is Broken and Should Be Put Out of its Misery

Cemetary Tombstone RIP Death Demise Halloween Skeleton

Background checks are broken.

They’re necessary, especially when verifying personnel for sensitive positions, but right now, the system is broken.

It’s a really lucrative business if you’re a background check company, because the system is great at exploiting companies checking applicants and creating more work for themselves by delivering antiquated and non-transferable reports. But for everyone else, employer and employee alike, change is long overdue.

What’s so bad about this setup, you ask?

Well, to begin with, background checks are currently wildly insecure. Prospective employees are usually stressed and feel rushed in this process, and often don’t wrap their heads around the reality that when they turn sensitive documents over to background check companies, those items are now in the hands of that party and stored on their servers forever. This puts their personal documents at additional risk every time they’re trusted with another company. If you thought the Equifax fiasco was bad, then realize you’re putting yourself at that same risk with every background check you do.

Next, one of the reasons they always seem so slow is that personal data and check results are not transferable between companies. That means if you apply to work at three banks, and they use different KYC companies, you need to go through three different processes. That also means the bank has to pay anew for each check, even if that applicant has been approved separately before. Guess who’s the only one who profits from this? You guessed it, the background check companies.

Data is also not transferable between countries. For example, EU citizens have the option to live and work in 28 countries, but in each new country they’d need to begin the process of background checks all over again. And I’m sure you guessed that across borders and languages the process doesn’t get any faster or easier.

And even if you luck out, and a new bank you apply for does use a KYC firm you went through before, your data gets stale, fast, and firms have no interest in updating it unless they’re explicitly paid to do so. So banks have to invest a lot of time, effort, and money to get updated information. Guess who profits? KYC firms. Guess who gets to wait around twiddling their thumbs? That’s right: you.

What about blockchain solutions?

It’s gone on like this for years with little change, and no sign of a remedy. Some blockchain solutions have emerged which could have potential, but so far have been deeply flawed. Some prioritize certain actors to grant trust over others, based on their place of employment or other factors. It is not an equal playing field, which slows down the system by stacking demand for certain checkers for often insufficient justification.

Other blockchain solutions are located on the Ethereum blockchain, and are thus subject to price fluctuations based on Ethereum gas prices. For a KYC solution to be effective, it really needs to have its own blockchain, and complete control over its fees and operating costs.  However, those independent solutions which do exist are not connected to more mainstream chains at all, making operations cumbersome from a data and monetary transfer perspective.

In short…

This busted system is a huge pain point in hiring from both sides, and it’s a huge pain point for the blockchain industry on the whole, which is riddled by serious issues with KYC and AML.

As we wait for nations to release their official policies on blockchain governance, it’s clear that KYC and AML will play a large role in these regulations. If Blockchain can’t figure out background checks, it could be dead in the water, which would have a severe impact on thousands of promising technology companies in every industry.

With the system so broken, not only is hiring delayed and aggravating the world over, but the entire blockchain idea may hang in the balance. It’s time for the industry to put its heads together and dream up a better way to get this done, or background check firms will simply be devoured by their own greed.

Ștefan Neagu is co-founder of Persona, the decentralized solution for identity management. He has extensive experience in the financial sector, having worked for ABN Amro and the Royal Bank of Scotland, where he was part of major projects such as migrating to a new core banking system and implementation of the internet banking application. He now dedicates his time to Persona and developing the ARK blockchain platform, but also loves learning about dinosaurs from his 4.5-year-old son.

Sponsored Links by DQ Promote


Send this to a friend