Old guard Swiss banks tackle money laundering with blockchain

Pictet, Lombard Odier, Cramer, Gonet, Mirabaud, Edmond de Rothschild. These are some of the most storied names in Swiss private banking. They represent well over 1,000 years of combined wealth management experience. They have all had their heads turned by the new kid on the block, called blockchain, to solve a very modern problem – complying with anti-money laundering rules.

The days of turning a blind eye to tax evasion and illicit assets funneling through the financial system are in the past. Verifying the provenance of clients, and the source of their money, has become increasingly costly and time-consuming. This is also the case when external asset managers (EAMs) – independent wealth managers – join forces with custodian banks.

Many regtech projects are working out ways to automate the Know Your Customer (KYC) and Anti-Money Laundering (AML) regulatory process. It seems inevitable that blockchain would join the party. The problem, is after all, securely storing and sharing sensitive data between a group of entities that have no particular reason to trust one another.

The Geneva-based Wecan Group says it has created a blockchain platform fit for purpose – called Wecan Comply. It runs on Hyperledger Fabric, which makes it an invitation-only distributed ledger technology (DLT) system. So far, 13 banks and EAMs have joined the network – mainly from the Geneva region. They have high hopes that the network will soon expand to include some of the household names of Zurich finance.

“We expect to see exponential growth in interest for this platform,” Edmond de Rothschild group COO Benoit Barbereau tells me. “It is a very positive and secure media that will be a must-have once it connects a critical number of users.”

Why is that? Barbereau believes the platform will simplify and streamline the tedium of compliance to such an extent that it will become less attractive for network members to do business with institutions outside of the DLT system. He tells me that the Swiss financial regulator likes the idea of compliance data being updated in real time in a secure and transparent way. The system also deletes unnecessary repetition of tasks when network members form new business relationships.

At present, Wecan Comply remains constrained to financial players within Switzerland. There are issues to overcome, such as data sharing laws in other countries, that need to be overcome before it can be rolled out beyond Swiss borders.

The technology has recently been complemented by the Blockchain Association for Finance – a body that will set up rules of engagement and standards for submitted data. It will also ensure continuity should network members drop out at a later date.

“This is a good example of what can be achieved when different financial players have the same goal of improving efficiency around the exchange of information,” says Barbereau.

For Wecan Group, the platform signifies its first sizeable complete project. The group also branches into tokenisation of assets and helps companies raise funds using DLT. But while it has made some progress in these areas, such business has been held up by a lack of infrastructure and the immaturity of these markets.