Know-Your-Customer (KYC) Requirements for Initial Coin Offerings Toward Designing a Compliant-by-Design KYC-System Based on Blockchain Technology

【Author】 Ostern, Nadine Kathrin; Riedel, Johannes

【Source】BUSINESS & INFORMATION SYSTEMS ENGINEERING

【影响因子】5.675

【Abstract】Blockchain technology is often proposed as an infrastructure for decentralized Know-Your-Customer (KYC) verification, i.e., a process determining whether a customer is eligible for a given transaction. The benefit of using blockchain technology lies in the expected compliance costs reduction for companies by automatically enforcing KYC-requirements, whose results are accessible by multiple financial institutions. While information systems researchers have proposed conceptual models and prototypes of blockchain-based KYC-systems, they do not yet consider severe penalties that are applicable to companies if KYC-requirements are not met. Hence, if the legal requirements for KYC-processes cannot be met, these systems are not applicable. The paper uses an objective-centered design science research approach to develop a blockchain-based KYC-system for the conduct of ICOs that is compliant-by-design. To this end, the authors first identify existing KYC-requirements and define corresponding system design objectives that are used to develop a KYC-system that automatically enforces KYC-regulations, thereby preventing money laundering and other forms of identity fraud. Second, the authors contribute to the literature by providing a blueprint for compliant-by-design blockchain-based KYC-systems, in the paper, integrated into the investment flow of an ICO. Third, the authors propose a KYC-system that is applicable in the real world, by making - due to legal certainty - KYC-processes cost-effective, i.e., the proposed blockchain-based KYC-system expectably reduces compliance costs for customers and financial organizations.

【Keywords】Blockchain; Distributed ledger; Know-your-customer; Anti-money-laundering; Initial coin offering; Compliance-by-design; Design science research

【发表时间】2020 OCT

【收录时间】2022-01-02

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