AML & KYC Compliance using Blockchain Ashutosh Anand, Consultant Mahesh Deosthale, Manager - Consulting Cognizant Technology Solutions 1

Abstract Blockchain has disrupted banking in this digital era. This technology is increasingly being adopted for settlements and payments systems. Adoption of Blockchain KYC registry is the next logical step. However, assuring Blockchain networks is no easy task and hence requires a completely different QA approach.   This paper, proposes an approach to navigate quality assurance for Blockchain innovations in areas such as KYC and AML, using a test model that validates business outcomes. The paper covers techniques to assure Blockchain adoption across multiple business processes - Account Opening, Customer Maintenance, Account Maintenance, Regulatory Reporting and Payments.

Index Blockchain Technology – Key Constructs Problems & Opportunities for Blockchain Testing AML / KYC Legacy Solution Testing AML / KYC Blockchain Solution Testing Blockchain Testing Touchpoints Blockchain Testing – ABC Framework Blockchain Testing – Anticipated Value Proposition Blockchain Testing Conclusions Appendix

Blockchain Technology – Key Constructs A chronological record of transactions in a distributed ledger shared across a business network Business logic embedded in ledger that can be triggered when certain conditions are met Distributed Storage Ledger Smart Contracts All participants agree to a network verified transaction by consensus Cryptography is a central feature, transactions are secure, authenticated & verifiable Transactions are broadcasted through the network and travel from one node to another Network Consensus Security Transaction stored in the Distributed Ledger Lower Cost Increased Transparency Greater Security Faster Settlement 4

Problems & Opportunities For Blockchain Testing Fast Pace of Blockchain Tech Innovations Expanding Blockchain Business Use cases Blockchain Tech is fast moving to be mainstream technology Lack of Blockchain Testing Expertise Lack of Best Practices, Models, Tools etc. within Blockchain Testing area 5

Legacy Solution Testing AML / KYC Legacy Solution Testing Client Onboarding Request Client Due Diligence On going mgt. /Exiting AML / KYC Legacy Solution Data Systems CRM Systems External Interfaces Consumer Systems Reporting Systems Customer Onboarding Systems Back Office Specialist Customer Identification Data Compliance Check Data Validation Customer Due Diligence Check List External Due Diligence KYC Approved KYC Registry Simplified KYC/ AML Flow Key Concerns Suboptimal Test Strategy- Test Effort duplication / redundancy Inadequate Automation Testing Lack of Integration Testing due to Need Based Testing Testing done in silo environments AML / KYC Legacy Solution Testing Functional testing Non- Functional Testing Other Testing Testing Focus Verification of KYC/AML business rules Verification of KYC/AML data through Business and Product lines Integration Testing of multi sourced data, Application touchpoints Verification of KYC/AML data streamlining through Database Testing Verification of AML/KYC Business rules, data transfer and transformations through System Test, Integration Test etc. Targeted Volume Testing Testing to validate responsiveness and stability of the system. External Interface Testing to validated shared KYC registries Database Testing to ensure validity of AML KYC datasets 6

AML / KYC Blockchain Solution Testing Functional Testing Non- Functional Testing Other Testing Testing Focus Verification of KYC/AML business rules through Smart Contracts Security Testing- verification of Blockchain hashing and encryption Verification of Blockchain consensus, Transaction state - one version of truth through functional, database and API Testing Verification of AML/KYC Business rules through Smart Contracts Verification of Blockchain Consensus Blockchain Platform performance Test Blockchain scalability & stability Test Blockchain Load Test SOA/ API Testing Security Testing- Verification of Hashing & Encryption User Interface and Mobile App Testing Suboptimal Test Strategy – Lack of Blockchain knowledge base within Testing universe Lack of Blockchain Testing tools Lack of Best Practices optimized for Blockchain Testing Lack of standardization in Blockchain Testing Key Concerns Blockchain Platform Ref Data Systems CRM Systems Reporting Systems External Interfaces Organizational Internal Systems Customer Onboarding Systems Back Office Specialist Customer Identification Data Organizational Internal Compliance Check Data Validation Customer Due Diligence Check List External Validation Central KYC Registry Blockchain Network Simplified Blockchain Based KYC/ AML Flow AML / KYC Blockchain Solution Testing 7

Blockchain Testing Touchpoints Transaction Processing Transaction State Assets on Blockchain History & Audit Smart Contracts Interaction with APIs Vault / Wallet Consensus Mechanism Validation of Transactions life cycle through Apps/ Vaults / Wallets Validation of Transaction state across various lifecycle events Validation of Event notifications Validation of Transaction message verification (Signing) Validation of tokenization of assets on blockchain Validation of Business Rules through Smart Contracts Validation of interface with APIs for Access control, payments, track and trace, balances etc. Validation of secure registry and audit of transactions Validation of Transactions for timestamping etc. Blockchain Protocols (Permissioned/ Permission less) Blockchain Platform (Corda / Hyperledger /Ethereum /Ripple Etc.) Leverage Test Delivery Framework Blockchain Reusable Test Asset Development Leverage Blockchain Test Tools Test Delivery Components of Blockchain Testing Test Scaling Test Types Blockchain Knowledge Management Blockchain Test Best Practices Implementation BA-QA-Tech Test Delivery People, Operations, Governance & Reporting Test Excellence Test Types Blockchain Access Testing Blockchain Secure Hash Algorithm Testing Security Testing Shared Ledger Database Testing Smart Contract Validation Testing Blockchain Node Consensus Testing Functional Testing Blockchain Platform Performance Test Blockchain Scalability & Stability Test Blockchain Load Test Non Functional Testing Blockchain Cloud Testing SOA/ API Testing User Interface & Mobile Apps Testing Other Testing Blockchain Test Tools Use case Specific Details Business Of Implementation Details Adapt Blockchain Test Accelerators Blockchain Wallet Signature Testing Differentiated Blockchain Test Delivery Test Stream Collaboration Cross Components of Test Service 8

Blockchain Testing: Align-Build-Capabilities Framework Blockchain QA-IT-Business Process Convergence Enhanced Blockchain Quality Assurance Target Blockchain Strategy Evaluation Integration between Blockchain & Augmenting Technology Verification of Smart Contract & Consensus Mechanism Integration of Blockchain with Existing Infrastructure Distributed Ledger Services Verification Align Blockchain Adoptions/Transformations Capabilities ABC Capabilities Blockchain Platform Services ABC Blockchain Prototyping Build Blockchain Event Streams Verification Blockchain QA Knowledge DApp Test Scenarios Blockchain Test Tools and Accelerators Development Support Blockchain Platform Agnostic Test Scenarios Blockchain Skilled Resource Pool Digital Asset Agnostic Functional Test Scenarios TOKENS Blockchain Knowledge Libraries 9

Blockchain Testing ABC Framework - Anticipated Value Proposition Blockchain innovation and investments are growing multifold. We envisage Hugh traction with need for strategic Blockchain Test Delivery Models, skilled resources in near future and ABC Framework is our approach to tap the Blockchain Testing Market potential of about $100 MM. 10 Source: McKinsey & Company

Blockchain Testing Conclusions ABC Framework Based Blockchain Testing Value Delivery Through Blockchain Testing Blockchain Tech Initiatives / Evolution Blockchain As –a-Service (BaaS) Blockchain Cloud Service Expand Blockchain capabilities with infrastructure services like storage, middleware, messaging etc. Focused alignment of Blockchain Testing with Blockchain As-a-Service, Fintech innovation , Digital and Regulatory initiatives Improvement with Time to Market Improvement in ROI Targeted Blockchain Testing solution building through Blockchain Test artefacts, accelerators, Tools, etc. which can be used across different Blockchain use cases Efficient collaboration between Customer business streams and Blockchain Testing stream Better Blockchain Test Quality Management Blockchain- Fintech & Regulation Blockchain- Digital & IOT Improved Customer Trust Better Business Blockchain Process Assurance Heightened Convergence of Customer Centric Blockchain & Digital Strategies Blockchain Tech Aligned QA Resources Improved Blockchain Testing Insight Utilization Improved Quality & Efficiency Blockchain network on a private, virtualized environment Regulatory and Fintech Blockchain Sandbox developments for enabling product testing Innovative Internet of Things (IoT) and targeted Blockchain Dapps. Support Value

References & Appendix

Build Blockchain Knowledge Libraries New Developments Bottom up creation of Blockchain knowledge artefacts Enhancements Enhancing existing Blockchain knowledge base, adding new resources Conformance Conforming to customer Blockchain usecase ensuring interoperability Re-Architecture Restructure existing Blockchain knowledge base and leverage latest Blockchain trends

Blockchain Test Capabilities Blockchain Ledgers Blockchain State / Events Tokenization of Asset Encryption & Hashing Blockchain Consensus Corda External APIs Register Users Query Blockchain Issue Transactions Blockchain Key & Identity Services Blockchain Applications Consortium or Private Blockchains Public Blockchains Native Tokens Asset-backed Tokens Unique ID for Asset Smart Contract Web Applications Blockchain Native Applications Wallets / Vaults Cryptographic hashing Immutable records Secure identification of assets Consolidated, consistent dataset Proof-of-Work Proof-Of-Stake Byzantine fault tolerance Self enforcing contracts Digitized Analog Contract Real-time Auditing of Transactions Common Trusted Database Storage algorithms (Merkle Trees, MerklePatriciaTrees, Linked List) Transparency & Verifiability Proof of distribution Basic Data Model for Blockchain Blockchain Solutions/ Providers Transactions Blockchain Frameworks/ Platforms Blockchain Underpinnings

Author Biography Ashutosh Anand, Consultant Business Consultant in Banking & Information Technology with more than 5 years of experience in Business Analysis, Project Management, Relationship Management and QA roles. Demonstrated expertise in Banking, Financial Services, and Business Analysis Functions. Has varied work experience and certifications in Wholesale Banking, Investment Banking, Retail Banking and IT. Mahesh Deosthale, Manager - Consulting 18+ years of IT experience with 13+ years into software testing and quality assurance specializing into Test Consultancy, Test Management and Test Solutions architect. Master of Business Administration with Dual Specialization in Banking Management and Project Management. PRINCE2 Practitioner, ISTQB Advance Test Manager, Technical & Functional Test Analyst certified 

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