Designed models vs. customer experience
Products and services do not stop working exactly as planned. Every person and business has experienced many changes in the last one year, and these changes have also affected the financial industry. Society is built on trust and civic relationships (both individuals and corporations), but everything changes if participants have malicious intentions. These bad actors are the cause of patronage of weapons, drugs, corruption and venal practices. This is why the rules regarding AML (Money Laundering) and KYC (Know Your Customer) methods are very important for maintaining the integrity of the society.
The role of the bank
KYC has been designed as part of the identification process. Although KYC processes help identify a specific person, they do not prevent malicious actions from occurring for acceptable individuals. Therefore, it is necessary to observe methods for monitoring and preventing certain types of activity. EMBLY is always asking how can we best design these systems when the financial institution cannot access the information it should not have access to?
Every year the AML restrictions are getting stricter. Banks are willing to limit the flow of money unless there is a clear explanation of the source and purpose of the funds. While it is important to prevent banks from accepting funds for an illegal activity, these programs also require a lot of resources to maintain. This could potentially prevent individuals from using funds that were obtained for legal purposes. This is why we have seen attempts by wealthy individuals and PEPs (politically open individuals) to control various financial institutions in order to avoid these restrictions. In the future regulatory agencies may bring in more restrictions, which will be facilitated by improved and automated monitoring systems.
No one is dissatisfied
At the moment, many teams are satisfied with the stability. Banks are monitored by government regulators, central banks target the GDP index, and the IMF processes the distribution of global SDR assets. However, we must acknowledge that politics also plays an important role in every process. For example, Venezuela, Russia, India – financial freedom is lagging behind. Although there have been small innovations in tools to create freedom for both individuals and businesses, they are designed to be limited to small organizations with EMI licenses, and ultimately part of a system that has the same restrictions as banks. This is a big fault of the world economic system – political infiltration across the board.
Cryptocurrencies were designed as a tool for achieving financial freedom for everyone. “Be your own bank” is a key concept of Bitcoin, but it is often seen outside the applicable acceptable practice in conventional financial markets. This is why it is important that new businesses include KYC and AML practices.
AML is very difficult for crypto assets. Imagine you are a financial institution and one of your individual customers is receiving an incoming transfer above the limits set by your regulator. To facilitate the transaction, you will need to request specific documentation such as a bank statement (from another bank), or other relevant agreement. But even these documents will not be enough to prove the ultimate source of funding. There is no denying that these traditional theological models still have many flaws and errors that are very difficult to correct.
P2P is wrong
When Uber was just launched, everyone said, “Uber breaks the traditional thematic centralized market,” but what do we see now? Countries try to limit Uber’s activities, forcing local partnerships or exclusive rights to certain markets. In Russia, for example, it is Yandex. In Singapore, it’s a grab. Is it possible to work in this way to say free market? The same problem exists with Airbnb – it is designed as a trusted marketplace, but there are still cases of fraud and there are ways to artificially improve the ratings of locations.
Their regulatory and counterfeit prevention structures for decentralized platforms like Polcadot are built on the very foundation of their model. Imagine that! Thus, decentralized systems were created to oppose traditional traditional governments and financial institutions and to create systems that promote equality, fairness, and security.
Unlike traditional governments and financial institutions, P2P platforms are also able to adapt quickly and change when vulnerabilities are discovered. The best solution for new players is not to dismantle existing systems but to integrate secure and ubiquitous global tools. Hopefully, established organizations seek solutions in collaboration with innovators adopting new technologies, rather than trying to impose new limitations or new or exciting developments.
Author: Eugene Khashin, Managing Partner at Embily Inc.