Sri Lanka’s Central Bank Develops Blockchain-Based KYC Proof-of-Concept
Sri Lanka is embracing blockchain technology to revolutionize its financial landscape. The Central Bank of Sri Lanka (CBSL) has announced a significant step toward modernizing customer data management with a blockchain-based proof-of-concept (PoC) for a shared Know Your Customer (KYC) facility.
This initiative promises to streamline banking operations, reduce costs, and boost financial inclusion across the country.
The Blockchain KYC Initiative
Project Overview
The blockchain-based KYC facility aims to allow secure sharing and updating of customer data across government and financial institutions. According to the central bank, the foundation for this ambitious project was laid in 2019, with development work now set to begin.
D. Kumaratunge, Director of Payments and Settlements at CBSL, stated:
“The response to join this project, both locally and internationally, has been extremely heartening. We are happy to say that we have finalized selecting suitable applicants to begin development shortly.”
Participants and Timeline
The CBSL received 36 applications from local and international firms to contribute to this national project. After a rigorous selection process, three firms, including one foreign tech company, have been chosen to develop the PoC.
The PoC is expected to take 6–9 months to complete, after which the firms will submit their findings for evaluation by various governing bodies, including the National Payment Council and the Monetary Board.
Benefits of a Blockchain KYC System
1. Streamlined Customer Onboarding
The shared KYC facility will simplify the onboarding process for new customers by providing:
- Secure data sharing among institutions.
- A unified platform for customer verification, reducing redundancies.
2. Cost Reduction
The facility is designed to lower administrative costs associated with data management and compliance efforts.
3. Enhanced Financial Inclusion
The project aims to bring more people into the formal financial sector by:
- Simplifying account opening processes.
- Making banking more accessible across the country.
How the PoC Works
Development Process
The chosen firms will build a blockchain-based system that enables:
- Secure sharing of customer data between banks and government entities.
- Real-time updates to customer profiles, ensuring accuracy and compliance.
Evaluation
After development, the PoC will undergo:
- A review by CBSL’s Payments and Settlements Department.
- Further evaluation by the National Payment Council and Monetary Board.
Post-Development Opportunities
The firms involved in the PoC will not gain preferential treatment for future commercial implementations of the KYC facility, ensuring a fair competitive process.
Key Stakeholders and Support
Banking Sector Involvement
Several Sri Lankan banks have already committed to participating in the project, signaling widespread industry support.
Government Backing
CBSL has emphasized that the blockchain KYC initiative is a national priority, reflecting the government’s commitment to technological innovation.
Challenges and Future Outlook
Potential Hurdles
- Technical Complexity: Building a secure, scalable blockchain system.
- Regulatory Compliance: Ensuring the platform meets local and international standards.
Long-Term Vision
If successful, the shared KYC facility could:
- Serve as a model for other countries exploring blockchain-based banking solutions.
- Foster greater collaboration between banks and government agencies.
Conclusion
Sri Lanka’s adoption of blockchain technology for a shared KYC system represents a significant step toward modernizing its financial infrastructure. By enhancing customer onboarding, reducing costs, and improving data security, the project promises to drive financial inclusion and set a benchmark for innovation in the banking sector.
As development progresses, the PoC will be closely watched by the global financial and blockchain communities.
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