A friend of mine went to open a savings account with a UK building society. She had had an account there for more than 20 years, but wanted (for purposes of administrative convenience) to have a separate account to put cash in for her son’s college money. Armed with a passport, she went to her local branch only to be told that the would have to go home and come back with a copy of a recent utility bill — because her passport was not a proof of address (I think) — which, naturally, she couldn’t be bothered to do. So she went home and opened an online savings account with her bank, which did not ask for a copy of a recent utility bill and just had to put up with the several days delay in transferring money from the old to new account. This is not to complain about the building society. The nutty rules are government KYC/AML/ATF rules, not the building society’s. But what seems odd to me is that while people like my friend are being annoyed and inconvenienced about an account that will hold something in the region of five or six grand maximum, actual theft and money laundering appears to continue at a grand scale. The cost and inconvenience for the little people is not part of the equation. My old chum Matteo Rizzi raised a similar point about the tremendous worldwide waste of money there is in not doing much about money laundering and related crimes.

Yesterday I had to go to a notary to notarise my utility bill to proof my address for a company in our portfolio, which bank asked (rightly) for KYC … And I am ALREADY a customer of that bank.

[From I miss Three Things in Fintech today.. | Matteo Rizzi | LinkedIn]

On the one hand, this sort of nonsense is funny and provides useful anecdotes to support conference presentations, but on the other hand it makes me wonder what the point of these rules is, particularly the rules around AML. I’ve written before about the lack of cost-benefit analysis around the unelected and unaccountable Financial Action Task Force (FATF) rules and I’m certainly not the only person questioning the approach.

Though the regulations have limited impact on criminal activities, they still cost money. Tracking illicit money flows requires a considerable bureaucracy. Enforcing the regulations cost an estimated $7 billion in the U.S., and probably far more.

[From Why the World Is So Bad at Tracking Dirty Money – Bloomberg Business]

The amounts of money spent on KYC are still rising and may be about to get even higher. Still, I suppose, at least it means that fraudsters cannot open bank accounts any more. No, wait… according to the Cifas, the UK’s fraud prevention bureau the number of bank accounts opened using stolen or fictitious identities doubled last year. Doubled. The public end up paying for this, in more ways than one.

In the best of cases, anti-money-laundering efforts are likely to do no more than raise the cost of transactions. A system that misses all but a fraction of a percent of criminal financial flows is almost guaranteed to miss terrorism finance in particular, which involves very small sums

[From Why the World Is So Bad at Tracking Dirty Money – Bloomberg Business]

HHhhhmm. So no impact on money laundering and no impact on terrorism. Yet the costs continue to spiral out of control. As do the fines associated with non-compliance (see chart). Barclays has just been fined $100m+ for customer due diligence (CDD) failures relating to a multi-billion dollar fund deal back in 2011. I’m not picking on Barclays by choosing this example, it just happens to be in the news today. It does, however, help to make a useful point about the spiralling cost and complexity of CDD.

At one point, the clients agreed with Barclays to make a change to the Trust Deed, which related to who ultimately got a pay-out from the transaction and under what circumstances the beneficiary could be changed [but eventually] it gave up trying to check who would or could get paid by this mammoth transaction.

[From FCA fines Barclays for financial crime failings on ‘deal of the century’ – Business Insider]

This is the sort of thing that shared ledgers ought to end forever in a world of ambient accountability. The idea that a regulated financial institution would be able pay money to person or persons unknown would be consigned to the database of history. And, of course, it would certainly be possible to construct a translucent consensus computer system (of which a replicated distributed shared ledger might be an excellent example) in such a way as to partition knowledge of identities: in other words, the trading bank might not know who owns a particular wallet (for example) but it would know for sure that another regulated financial institution does and, more importantly, that regulators can find out if needs be.


There was a panel about this sort of thing at the San Francisco Future of Money and Technology Conference last week. The kind people there had invited me on to a panel to discuss issues around the blockchain and identity with StellarR3CEV and MaidSafe [video]. It was actually Paige Peterson from MaidSafe who raised the point about partitioning, and she was spot on: this is a fundamental mechanism for managing identity in a connected world. Incidentally, during the panel I drew the distinction between taking external identities (such as a passport or driving licence) and storing these in a shared ledger and “growing” identities on a shared ledger. Top down versus bottom up identity or, as my old chum Giyom Lebleu tweeted during the panel, uppercase identity versus lowercase identity. I really like this useful characterisation and will undoubted start using “ID” vs “id” in presentations henceforth! Anyway, it was a very thought provoking discussion, so many thanks Joyce, Tim, Paige and chairperson Dan for a great panel.


  1. Dave,

    I agree with most of what you wrote about in this article. KYC, AML, BSA, and all those other acronyms that were born by “nutty government rules” are very important. Just because they were created, it does not mean they should go unchallenged. I think they all need to be re-booted. They are failing. The distributed ledger may help but the reason for all these rules need to be revisited to address what works and what doesn’t work so that we can have rules that actually do what they are supposed to do and not muck up day-to-day banking.

  2. This super-id is presumably unrelated to Freud’s ego, super-ego, and id.
    Caps-id sound like a bug. How do you pronounce ID?

Leave a Reply

Subscribe to our newsletter

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

By accepting the Terms, you consent to Consult Hyperion communicating with you regarding our events, reports and services through our regular newsletter. You can unsubscribe anytime through our newsletters or by emailing us.
%d bloggers like this:
Verified by MonsterInsights