DLT applications for the business world

Credit Suisse Asset Management commissioned students at the University of Basel to develop solution approaches to simplifying Know Your Customer procedures. Distributed ledger technology (DLT) experts and representatives of the business community were deeply impressed by their work.

November 26, 2020

How can the process of verifying the identity of new clients be simplified? All banks are concerned with this question. They are obligated to run a Know Your Customer (KYC) check for each new client relationship to combat money laundering. KYC procedures pose substantial costs to financial institutions and the time involved in carrying out a KYC check is also substantial.

Via smart contracts, Ethereum enables users to write programs that – thanks to DLT – are guaranteed to be executed exactly  as programmed and are available worldwide. The resulting guaranteed execution of program code makes a wide variety of new applications possible.

"Through the Blockchain Challenge, companies can position themselves as attractive employers, and on top of that they receive a distributed ledger technology concept paper addressing their own defined problem, ideally even with initial implementation proposals."
Prof. Fabian Schär, Managing Director of the Center for Innovative Finance (CIF) and initiator of the Blockchain Challenge

Avoiding redundancies

Since regulations prohibit KYC check procedures from being abbreviated or simplified, the team of students commissioned by Credit Suisse Asset Management searched for a DLT-based procedure aimed at preventing redundancies. The students Kolja Sander, Stéphane Vez, Yeliz Cay and Janneke de Snaijer took on this problem in the context of the Blockchain Challenge.

The system architecture had to be designed in a way that keeps confidential client data from being shared with the network and prevents its participants from tracing client relationships with other involved banks. To survive in a market economy environment, the concept must also include an adequate system of rewards and incentives.

Improvement of the system through KYC software

Security through smart contracts

The students based their solution approach on smart contracts and multi-signature protocols. Anonymity is ensured through creative employment of hierarchical deterministic key derivation systems and a certificate authority. Building on that, the team drafted the architecture of a permissioned ledger in which each participant operates its own node. The necessary KYC functions are provided by a variety of interlinked smart contracts. All of the functions are abstracted behind a main smart contract, making it the central interface between the system and external clients. This modular system architecture enables easy upgrading of the system and rapid implementation of new functions.

Transparency in the supply chain

Novartis sought a smart solution to a somewhat different problem. The task at hand here was to devise a procedure to improve verification of suppliers and supply chains to ensure compliance with guidelines without having to disclose the identity of subcontractors. Today’s centralized administration of certificates is not always able to provide error-free verification. Moreover, it takes a lot of resources to uncover misconduct and trace down individual companies.

So, two master’s students, Julius Lüttin and Florian Gronde, worked out a concept for ensuring and verifying responsible conduct by all companies in a supply chain. One focus was on better integrating second-tier and lower-tier suppliers. There is a wide spectrum of such subcontractors, ranging from suppliers of intermediate products to cleaning companies. Multinational corporations usually know little about such firms.

Alternate text

Discretion thanks to DLT

Master’s students Julius Lüttin and Florian Gronde  are the proud winners of the Blockchain Challenge. They developed a concept for Novartis that enables participants in the supply chain to provide evidence that they are acting responsibly without having to disclose strategically critical information.

The concept developed puts automated retrieval and forwarding of certificates into practice. Self-sovereign identities enable decentralized administration of those certificates. Based on this, participants in the supply chain can now use zero-knowledge proofs to attest to their responsible conduct without having to reveal strategically critical information to their competitors.

The concept devised by the two master’s students turned out  to be so compelling that they were awarded the CHF 10,000  first prize in the Blockchain Challenge. Accolades also went to Team Port of Switzerland for its decentralized digitalization concept for port infrastructures and to Team BearingPoint for its platform for transparently and cost-efficiently handling construction project tenders.

An ideal merging of theory and practice

The merging of theory and practice achieved under the Blockchain Challenge is unprecedented. The competition enables students to apply their knowledge acquired in university courses to real-world problems and to build valuable contacts with businesses. Participating companies, in turn, benefit from the students’ enormous DLT knowhow, obtain innovative solution approaches to their defined problem, and can position themselves as potential employers in an attractive venue.

Center for Innovative Finance (CIF)

In new Scope

Driven by disruptive innovation, the far-reaching changes taking place in asset management would have continued even without the COVID-19 crisis. The impact of the pandemic will nevertheless speed up this process of change, because the challenges have grown again at a global level.

Get in touch with Asset Management

Contact us to learn about exciting investment opportunities. We are here to help you achieve your investment goals.