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Viewpoint: Research on the application prospect of blockchain technology in anti money laundering

Time : 09/02/2022 Author : rg6huk Click : + -
        As an important breakthrough for independent innovation of core technology, promoting the development and application of blockchain technology has become China's national strategy. As a financial science and technology innovation technology, blockchain has the characteristics of decentralization, hard to tamper with and traceability, and can solve many industry pain points in the financial industry. In recent years, with the proposal of the overall national security concept, anti money laundering and anti terrorist financing, as an important measure to ensure financial security and social stability, have received more and more attention from the Party Central Committee and the State Council. The establishment and improvement of anti money laundering, anti terrorist financing and anti tax evasion regulatory systems and mechanisms has become an important part of the comprehensive national governance. How to give full play to the advantages of blockchain technology and apply blockchain technology to the anti money laundering work has become a topic of great value and practical significance.
        Blockchain is a chain type data structure that combines data blocks in chronological order in a sequential manner, and ensures a distributed ledger that cannot be tampered with and forged by means of cryptography. Its core elements mainly include block, point-to-point network and consensus mechanism. "Block" is the main component of the blockchain technology. It is a data packet carrying data information on the blockchain network, recording all transactions or other data information generated and verified during the creation of the block; The point-to-point network is the networking mode of the blockchain. Each node has the characteristics of equality and autonomy, and has the functions of route discovery, broadcast transaction, broadcast block and discovery of new nodes; The consensus mechanism ensures that each node can efficiently reach a consensus on the validity of the block data.
        Compared with other technologies, blockchain has the characteristics of decentralization, hard to tamper with and traceability. Every node in the blockchain network can equally participate in the uploading, updating, receiving and verifying of data. The data uploaded by any node is broadcast to the whole network, thus ensuring the consistency and comprehensiveness of the data stored on all nodes; In terms of trust mechanism, it is ensured by cryptographic principles such as hash algorithm, and no additional trust intermediary needs to be established. Each node in the whole system can exchange data, and nodes can not cheat each other, greatly reducing the credit cost; The data is permanently stored in the form of blocks. The blocks are generated one by one in chronological order and connected into a chain, so that all transaction information occurring during the creation can be accurately recorded on the corresponding blocks. The information is distributed and stored on each node, ensuring the security and traceability of the data.
        The blockchain technology is not a single information technology, but relies on existing technologies, with original integration and innovation, to create a brand-new way of trust. Blockchain technology has roughly experienced three development stages, namely, the technology origin stage, the digital currency stage and the smart contract stage. At present, the application of blockchain has been extended to the Internet of things, intelligent manufacturing, supply chain management, digital asset trading and other fields. From the current application, the characteristics and advantages of blockchain technology have solved some problems and difficulties faced by the development of the financial industry and product innovation. It can be predicted that with the improvement of technology and the combination with other financial technologies, the blockchain technology will gradually adapt to the application of large-scale financial scenarios including the anti money laundering field.
        The crime of money laundering has seriously affected a country's political stability, social stability, economic and financial security. Since the establishment of the Financial Action Task Force (FATF) in 1989, countries around the world have continuously strengthened the fight against the crime of money laundering. On the basis of referring to FATF recommendations and relevant international conventions, China has also gradually established an anti money laundering system and mechanism adapted to its national conditions, including the establishment of the inter ministerial joint conference system of the State Council on anti money laundering, the establishment of the administrative department in charge of anti money laundering and the clarification of the responsibilities of the competent department and the industry supervision department, and the obligation of giving financial institutions the first line of defense in monitoring and combating money laundering crimes. From the China Anti Money Laundering report in recent years, it can be seen that under the pressure of the regulatory authorities to continuously strengthen supervision, financial institutions have increased their investment in three basic tasks: identifying customers' identities, reporting large and suspicious transactions, and preserving customers' identity data and transaction records year by year.
        From the regulatory results such as law enforcement inspection and risk assessment, the compliance problem has been greatly reduced, but the effectiveness problem has gradually emerged, which has become a bottleneck hindering the improvement of anti money laundering performance. In 2019, FATF also pointed out in its mutual evaluation report on China's anti money laundering and anti terrorist financing that "financial institutions have not effectively applied due diligence measures, and there are obvious defects in customer identification and verification measures, including beneficial owner investigation and ongoing customer due diligence"; "There is no publicly available channel for the beneficial ownership information. The regulatory authorities mainly use the existing basic information, the customer due diligence information collected by financial institutions and the law enforcement power to obtain the beneficial ownership information"; "Lack of an effective system for obtaining accurate, sufficient and timely beneficial ownership information"; "Inconsistent practices of financial institutions in fulfilling the obligation of reporting suspicious transactions have increased the risk of information disclosure".
        For reasons such as customer privacy protection and market competition, at present, no customer information sharing mechanism has been formed between the regulatory authorities and the anti money laundering obligatory agencies and among the obligatory agencies. Multiple obligatory agencies need to carry out identity identification for the same customer, with high investment cost, single verification channel and often inconsistent identification results. Illegal elements take advantage of the loophole of the data island of the compulsory institutions to transfer funds across institutions and regions, which makes it more difficult for the compulsory institutions to monitor suspicious transactions. In order to give full play to the first line of defense against money laundering, the people's Bank of China issued the notice on strengthening account opening management and follow-up control measures for suspicious transaction reports, requiring banks and other obligatory institutions to take appropriate follow-up control measures for customers, accounts, funds and financial businesses involved in suspicious transaction reports on the basis of reasonable confirmation of suspicious transactions.
        In practice, due to the lack of necessary information sharing, the obligatory institutions often fail to take control measures in time for the subjects involved in cross institutional and cross market crimes that open accounts with multiple obligatory institutions, resulting in frequent occurrence of upstream crimes of money laundering and criminal activities of money laundering. Establishing an anti money laundering sharing mechanism can improve the cost-benefit ratio of customer due diligence, realize the overall control of confirmed suspicious customers and suspicious accounts, and improve the overall defense capability of the anti money laundering system. If the traditional database technology is used to realize information sharing, the data center is usually built by a centralized operation organization, and the data center is responsible for the daily maintenance of the list. With the increase of the number of access institutions, on the one hand, the operation pressure of the data center gradually increases, which affects the operation efficiency of shared data; On the other hand, the external attack risk faced by the data center also increases.
        Once the security vulnerability is broken, it will affect all organizations participating in the sharing, and the loss is difficult to estimate. It needs to spend a lot of resources to update and maintain the database. It needs to take higher security measures to protect the data, which greatly increases the operation cost of the data center under the centralized mode. Compared with the traditional database technology, the collective maintenance, hard to tamper and traceability of the blockchain technology can provide more possibilities for improving the effectiveness of anti money laundering. The data sharing based on the blockchain technology can open up the information isolated island among participating institutions, form a complete data chain, realize data exchange and release data value on the premise of taking into account privacy protection, information security and confidentiality. On this basis, it can simultaneously enable financial supervision, and help establish a multi-party regulatory mechanism to form sound governance.
        On the one hand, the blockchain uses the distributed architecture and combines with the multi-party privacy security computing platform to form distributed security computing. Under the condition of a large number of data computing needs, it can meet the rapid data information computing and sharing services. On the other hand, the rights of all participants are equal, and the records of each step of data collection, transaction, circulation, and calculation and analysis can be stored on the blockchain, so that the data quality is guaranteed and the data security is strengthened. In addition, each participating node independently maintains the equipment, which reduces the system construction and maintenance costs, avoids the disadvantages of centralized operation, and has a long life cycle and strong operation and maintenance advantages; The information query mode of collision matching can further reduce the risk of customer information disclosure.
        The application of blockchain technology to the anti money laundering field should be realized with the continuous improvement of laws and regulations, the continuous improvement of financial infrastructure, the continuous innovation in the technical field and the continuous expansion of the application level. In practice, we can adopt the development ideas of encouraging innovation, typical first try and point to area, and strengthen the standard guidance, promote co construction and sharing, solve the industry pain points and reduce the credit cost. Within financial institutions, the financial transaction infrastructure is transformed according to the standards formulated by the blockchain alliance to form a "private chain" based on blockchain technology. On the private chain network, each user of a financial institution is an independent node. When financial institutions collect, authenticate and update user information, relevant information should be stored and synchronized in the local ledger of each user node through blockchain technology, so as to realize that each node of the private chain network within a single financial institution records all customer identity information and transaction information. Blockchain technology ensures that the whole process of information collection and update is open, transparent and difficult to tamper with.
        Take a single financial institution, especially a large financial institution as an example. With the continuous innovation of its products and the development and launch of various business operating systems, its customers may generate new identity information when using new products and new businesses. However, due to the different emphasis of each system, the requirements for information quality are different. At present, the customer identity information of financial institutions mainly comes from the data collected by their core systems. Although there are also identity information data of the same customer in other business systems, these data are not used in the customer identity identification process, or cannot be mutually verified to ensure the accuracy of identity identification. This phenomenon becomes more obvious with the expansion of financial institutions.
        The blockchain platform is established by taking each business line and system within the institution as a node, and the customer related information obtained in the process of business development is classified and shared according to social relations, address, contact information, work unit, preference, asset scale and other tagging methods. The use of customer related information by various departments within the financial institution under certain security control principles can break through the bottleneck of information sharing within the institution, Improve the accuracy and efficiency of customer identification. The above practice can also be further extended to large financial holding groups. The parent company and subsidiaries of the financial holding group are taken as large nodes to build an independent blockchain platform, with multi-party participation and multi node maintenance. The standard structured transaction data information is stored through the blockchain, so as to realize the data sharing within the financial holding group, ensure that the data cannot be tampered with, and solve the problem of independent system architecture between factor companies The inconsistent data standards and asymmetric information caused by different technical indicators promote the penetration of information among subsidiaries and open up information islands, thus improving the consistency of customer information and the accuracy of suspicious transaction reports of the whole group.
        Build a blockchain alliance between regulators and financial institutions. The members of the alliance include the people's Bank of China, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission and other financial regulatory institutions, as well as various voluntary institutions such as banks, insurance, securities and specific non-financial industries. The alliance chain network is composed of two independent blockchain nodes, regulatory institutions and financial institutions, and its internal private chain network. Compared with the public chain, the alliance chain has more advantages in high availability, high performance, programmability and privacy protection. After the internal private blockchain certification is passed, the customer information and transaction information collected by financial institutions will be broadcast through the alliance blockchain and stored in the local ledger of all institutional nodes, so as to realize the interconnection and sharing of relevant financial data information.
        The participation of regulatory agencies is to introduce certification control and safety standards that meet regulatory requirements, so as to improve the overall safety and credibility of the system. At the same time, the data synchronization between the blockchain ledger of the proprietary chain and the alliance chain can be realized through cross chain technology, so that the data of the proprietary chain can be integrated into the consensus network of the alliance chain. The formation of the alliance chain will realize information sharing at the two levels of customer identity information and transaction information. The purpose of customer identity information exchange is to help financial institutions reduce the cost of initial identification and continuous identification of customer identity and solve the problem of inconsistent information; Customer transaction information sharing focuses on solving the problem that financial institutions can only obtain the transaction capital flow of their own customers and cannot obtain the upstream and downstream capital flow of customers.
        At the level of customer identity information sharing, each financial institution transmits the standardized customer information on the proprietary chain to the alliance chain through the interface, and controls the access rights of visitors through the control logic of data access. When the same customer keeps identity information in multiple financial institutions, multiple financial institutions can share identity information with the consent of the customer. The design idea that other financial institutions that have no business relationship with the customer have no right to access information takes into account the risk of information disclosure. At the same time, we can consider introducing the authoritative data information of administrative law enforcement departments and judicial departments as verification, which can effectively solve the problem of mutual trust between institutions and form a positive guidance for the quality of data on the chain of financial institutions.
        At the level of customer transaction information, with the increase of participating nodes, the efficiency of data synchronization is bound to be affected. Optimization can be considered in terms of data preprocessing and adding query processing engines. The construction of multi agency alliance chain needs to be based on ensuring customer information security and protecting customer privacy information. Therefore, in the early stage of the construction of the alliance chain in the anti money laundering field, pilot projects should be carried out in a small scale. With the progress of the blockchain technology and the accumulation of system construction experience, the scope of the alliance should be expanded, and finally the alliance chain involving all compulsory institutions should be established. According to the application fields and characteristics, the blockchain can be divided into public chain, commercial chain, life chain and other types.
        Therefore, on the basis of building the alliance chain in the anti money laundering field, we should pay close attention to the expansion and enrichment of other blockchain technology application scenarios that can play an auxiliary role in the anti money laundering work. With the construction of the national "double trust" system, we can see that some application scenarios that can effectively support the anti money laundering work, such as the "tax chain" and the "judicial chain", will continue to appear in the future, The definition of anti money laundering obligatory agencies will also be more broad. Timely introduction of cross checking in other scenarios will help improve the quality of anti money laundering monitoring and analysis. Therefore, the construction of public blockchain can be led by the state. Taking the construction of digital ID as the starting point and in accordance with the principle of hierarchical, classified and differentiated management, it defines digital ID for different market entities such as the government, enterprises and individuals, as well as algorithms and rules for distributed calculation, storage and dissemination of information data such as occupational information, license data, asset data, transaction data, biological characteristics, health data and network traces associated with digital ID.
        In terms of data use, the key rules shall be clearly defined. With the authorization of laws and regulations and government functional departments, the compulsory institutions can verify private data information. The regulatory authorities and financial institutions analyze the data on the alliance chain to generate the processing results, and transmit the processing results to the alliance chain platform participated by all obligatory institutions through the interface. The administrative law enforcement department and the judicial department on the chain will further analyze and process the information received, and feed back the final results to the relevant institutions. Based on this, each obligatory institution can conduct enhanced due diligence, account control, account cancellation and other operations on customers. Due to the unique decentralized characteristics of the blockchain technology, the stored data can not be tampered with, and it is open and reliable. The in-depth study of the blockchain and the analysis of the existing application scenarios provide a new solution to the problems arising from the existing work of the anti money laundering obligation agencies.
        The distributed storage form is also more secure and reliable, ensuring that the entire network will not be affected when a single node fails. Application of smart contract
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