Pakistan Banks to Use Blockchain-Based KYC System Development

The Pakistan Banks’ Association (PBA), consisting of 31 traditional banks operating in Pakistan, plans to launch an electronic platform for know-your-customer procedures that will be working nationally. The blockchain-based system will enable them to exchange customers’ personal information through what they describe as a decentralised and self-regulated network. The platform plans to strengthen Anti-Money Laundering (AML) capabilities while countering terror financing (CTF).

Pakistan banks

On March 2 2023, PBA signed a contract to develop Pakistan’s first blockchain-based KYC platform, which Avanza Group will produce. With a customer’s consent, any data collected by one bank can be shared with another using the shared blockchain. The move aims to unite companies specialising in advanced banking applications, blockchain, artificial intelligence and customer experience management solutions.

The signing formality was held at the industry organisation’s office in Karachi. It was attended by several officials, including the CEO of Avanza Innovations; Waqas Mirza and Chairman Muhammad Aurangzeb was also a part of the ceremony. Other banks in the group are international institutions such as the Industrial and Commercial Bank of China, Citibank and Deutsche Bank. The initiative aims to improve operational efficiencies, primarily improving customer experience during onboarding.

According to the report, PBA noted, “In addition to strengthening AML controls, the deployment of this platform will bring about efficiencies at participating banks and will result in improvement in customer experience.” According to the association, this platform should improve customer experience when opening an account and minimise onboarding costs, thus facilitating financial inclusion.

The Use of Blockchain for KYC Checks

Pakistani banks have planned to modernise their system by integrating the latest technologies into a daily routine. A know-your-customer blockchain-based eKYC platform named “Consonance,” designed by Avanza Group, has been tasked to enable banks to standardise and exchange customer data via a decentralised and self-regulated network.

The eKYC platform will unite companies that are experts in cutting-edge banking software, blockchain technology, artificial intelligence and customer experience management systems. Moreover, this will increase transparency in Pakistan’s existing financial system.

Banks can assess their existing and new clients by acquiring the data from KYC checks operated by other participating establishments. When financial transactions are listed on the blockchain, they are automatically saved in an unchangeable format.

Overview of Crypto Adoption in Pakistan

In March 2022, the Governor of the State Bank of Pakistan (SBP), Reza Baqir, said he saw a few practical applications for cryptocurrency during a panel discussion at the 13th Karachi Litera­ture Festival Sunday. Baqir acknowledged that blockchain technology has the future to be helpful, and it can effortlessly benefit from dealing with various issues.

The Pakistani central bank governor said, “acknowledged that blockchain technology has the potential to be helpful, and it can easily benefit from dealing with various issues.” He talked about the risks associated with cryptocurrencies. He added, “There is no way that the regulator or a law enforcement agency has visibility on who is doing transactions and for what purpose. Therefore, around the world, there are a lot of misuses [of cryptocurrency], including human rights violations, trafficking of people, money laundering, and many other things.”

On January 20 2022, Pakistan’s Telecommunication Authority requested to ban more than 1 600 crypto websites from the Federal Investigation Agency (FIA) following a complete ban recommendation by the State Bank of Pakistan (SBP) and the central bank. Director of FIA Babur Bakht Qureshi said, “A list of individuals involved in cryptocurrency trade is being prepared. Action will be taken against individuals who promote cryptocurrencies in Pakistan.”

At the country’s first blockchain summit, Pakistan’s Minister for science and technology, Shibli Faraz, said, “The finance ministry, the State Bank of Pakistan, and the Securities and Exchange Commission of Pakistan are already working on a plan to regularise cryptocurrency in the country.”

However, the SPB will issue licences to electronic money institutions for CBDC issuance. Pakistan will join other regions in the competition to authorise a central bank digital currency (CBDC) and has signed new regulations to ensure the launch by 2025.

Deputy Governor of SBP, Jameel Ahmed, noted: “These landmark regulations are a treatment to the SBP’s commitment toward openness, adoption of technology and digitisation of our financial institutions.” 

On January 13 2022, the State Bank of Pakistan (SBP) asked the Sindh High Court to ban unauthorised operations of crypto exchanges and impose penalties on them. Insiders from Bitcoineer mentioned that a 38-page report was submitted to the court by the Deputy Governor of SBP Sima Kamil proposes a complete ban on all crypto assets and related activities in the country. 

However, the Sindh High Court ordered the committee to dispatch a copy of the report to the Ministry of Law and the Ministry of Finance to decide whether any form of cryptocurrency will be allowed in Pakistan. The court has directed the two ministries to submit a joint report of their decision in April 2023. 

By: Hannah Parker