By Vanessa Malone
Yesterday, Horizon announced the formal launch of KYCware, an advanced KYC software solution built on the Ethereum blockchain to streamline the investor onboarding and identity verification process globally.
While Know Your Customer (KYC) and Anti-Money Laundering (AML) processes already play an integral role in client onboarding for financial intermediaries, they are becoming an increasingly critical component for blockchain market participants and issuers who wish to conduct compliant digital securities offerings (DSOs) or security token offerings (STOs).
A typical KYC/ AML program will include a method for collecting data to:
- Verify an investor is who they say they are
- Assess investment history and where funds for the investment are coming from
- Check an investor against AML lists to assess money laundering risks
But what we found is that the process financial institutions and companies use to onboard investors relies mostly on a manual and paper-based system when it comes to issuing securities. After an issuer’s bank gathers materials and organizes them for KYC review and onward AML screening, it can take 5–10 days to complete. This is a long and inefficient process.
Just as blockchain technology can be used to make issuing, managing, and trading securities more efficient, we found that blockchain technology can be used to make the investment process for issuers more transparent, compliant, and quick.
KYCware is a white-label KYC/ AML compliance software solution offering best-of-breed cryptographic security to compliantly onboard and verify investor identity through a smartphone application. We take the entire investment process and digitize it. Our goal — to bring a blockchain powered, compliance-focused, frictionless solution to the industry.
Note: KYCware can be utilized for any type of user onboarding, check out the types of clients we work with here. The ability to integrate all the nuances involved in the investment process into a smartphone app is what we want to highlight today.
Here’s how KYCware works:
- An issuer conducting a DSO or STO comes to us with an offering plan. We work with the team to customize our KYCware solution to an issuer’s offering, participating jurisdictions and company brand. We found that keeping the investment process under the issuer’s brand maintains trust, reliability, and keeps an on-brand experience for investors.
- The app becomes available to investors on the Apple App Store or Google Play Store, with a turnkey KYCware hosted web portal for issuers to review and manage all submissions.
- Investors download the app on the Apple App Store or Google Play Store and are taken through advanced ID, document, and identity verification technology including anti-gaming features, a Machine Readable Zone ‘MRZ’ scanner and liveness detection. The forms auto-adjust depending on an investor’s jurisdiction and regulatory requirements to maintain a comprehensive, user-friendly investment process. Investors who are unfamiliar with blockchain technology can also create an Ethereum wallet directly in the app. KYCware is the first investor onboarding app with an integrated US Broker-Dealer Subscription Booklet, W-8Ben submission and SEC Reg D 506(c) Investor Accreditation which works to dramatically shorten the investment process.
- Once an investor completes the KYC onboarding process, data is securely uploaded into an auto expiring cache where the bank (or other authorized regulated entity) can securely download the investor’s data. The investor is automatically screened against a proprietary database of global sanctions, politically exposed persons (PEPs), and watchlists.
- It typically takes 1.5 minutes to verify an investors KYC submission and AML screening. This is a key differentiator as issuers can assure users that sensitive data is managed solely by the issuer’s company and not outsourced to third-parties. Offline records of KYC submissions are secure & in accordance with SEC Rule 17a-4(f).
- Once cleared, an email is sent to the investor with the account to send money to. After the investment amount arrives, a banker approves and the bank will issue digital securities tokens to the investor’s wallet. Investors can send their digital securities to an SEC-regulated ATS for compliant secondary trading once the holding period has been met.
With KYCware, the entire onboarding process has the ability to go from weeks to minutes.
Because KYCware is connected to the blockchain, all KYC submissions are logged with a permanent immutable hash on the Ethereum blockchain, which allows for independent verifications and adds to investor protection.
This is why Horizon built our “tech stack” on top of the Ethereum blockchain, including KYCware. The blockchain is now protecting both the investor and issuer. Investors can be assured their data wasn’t tampered with at different stages of the offering, issuers maintain a record for enhanced shareholder management, and immutable transaction reporting is available for regulatory oversight.
There has been a lot in the news regarding compliance, and regulatory actions against companies or issuers that have failed to take the necessary steps when it comes to KYC compliance and AML. KYCware showcases how KYC and AML can be solved with blockchain technology and integrated into a simple investor onboarding process.
What we’ve learned from the ICO-era is that certain regulations such as KYC and AML solutions need to be implemented for the greater good of the industry. This will work to prevent the scams and scandals that plagued the blockchain industry. With blockchain technology solutions like KYCware, KYC and AML programs can mitigate risk, maintain compliance, and still protect user-experience, transparency and public consensus the community demands.
To see how Horizon’s KYCware solution can seamlessly integrate into your company or offering, please reach the team at firstname.lastname@example.org. For more information, please view the KYCware features page here, or visit https://kycware.com/.
A few words on KYCware from our Executive Team:
“I think one of our biggest differentiators when it comes to KYCware is our methodology and level of security when it comes to the protection of users’ sensitive information,” explains Horizon CEO Brian Collins. “What we believe is that in the eyes of the regulators, the issuer is ultimately responsible for making sure that all investors are properly KYC’d and AML’d, not a third-party who could further outsource the data to be verified. This is why we’ve built our technology to equip issuers and regulated entities involved with the tools needed to properly manage investors’ sensitive information.”
“Adding blockchain technology to a securities offering adds additional layers of complexity to the investment process that people may not be accustomed to,” says Horizon Chief Compliance Officer Mike Boswell. “By placing all the necessary steps and forms directly in the KYCware app, for example, the ability to generate an Ethereum wallet in the app, it puts familiarity, trust, and enhanced user experience back into an otherwise unfamiliar, slow process.”
“Blockchain technology is predicted to modernize the way securities are issued, traded, and managed,” says Horizon President Mark Elenowitz. “We believe that the process to invest in these digital securities needed to follow suit. Horizon’s KYCware platform implements Wall Street standards into blockchain technology to make the process from onboarding to secondary trading as frictionless and quick as possible.”