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Sectoral opportunities

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Overview of sectoral opportunities

The ability of blockchain technology to establish a single, recognised source of truth and to manage decentralised and transactional data without a central authority provides a versatility that can be of benefit to many different applications.

At present, Australia’s financial services sector has been the most prominent advocate and adopter of blockchain technology to date, undertaking nearly 40% of blockchain activity in the country. [64] The professional, scientific and technical services sector represents nearly 20%, with the remaining activity spread across a wide range of sectors, from retail through to mining, contributing to approximately 40% of overall blockchain activity in Australia. [65]

Blockchain and distributed ledger technology (DLT) provide new ways for organisations to work together, and new ways to represent and manage digital assets, as represented in the matrix below:

 

Simple coordination

Complex coordination

Property rights

(Digital assets)

  • Custodial services
  • Simple settlements

(Value chain)

  • Provenance
  • Trade finance
  • Conditional settlements

Information & authorisation

(Conventional IT)

  • Records management
  • Greater redundancy across geographically spread nodes

(Network)

  • Customs & single window
  • Trade certificates
  • Logistics events


There are opportunities to be realised through the use of blockchain technology in other sectors, in addition to those of the financial services and professional, scientific and technical services sector, where blockchain technology has traditionally been employed. Industry has also identified the opportunities that could be harnessed through blockchain in the legal sector, construction sector and government sector, specifically with respect to managing licences, permits and registries.

To showcase some opportunities, three use cases were selected for analysis. The following chapter will highlight the use of blockchain in the agriculture sector, with a focus on supply chains and wine exports; the education sector, with a focus on trusted credentials and facilitating trusted information about an individual’s skills and capabilities; and the financial sector, with a focus on identify checks, specifically ‘Know Your Customer’ checks.

Sectoral Showcase 1: Agricultural Supply Chains - wine exports

Overview of Australian agriculture

Australia’s agriculture is shaped by its varied environment and climate, providing both a competitive advantage in our diversity of production and a challenge for policy and on-farm decision-making [66] .

Total production in agriculture was $60 billion in 2018–19, with the largest contributions coming from horticulture ($11.6 billion), cattle ($11.3 billion), wheat ($6.2 billion), sheep/lamb ($4.7 billion), wool ($4.5 billion), milk ($4.3 billion), and fisheries ($3.2 billion) [67]. In 2018–19, Australia exported $50.7 billion in agricultural products, and $1.6 billion in seafood [68].

Australia’s principal export markets are China, South East Asia (ASEAN countries), Japan, the United States, the European Union (EU), and the Republic of Korea (Figure 5) [69] .

Figure 5. Australia’s principal export markets [70]

Issues in agricultural exports

The safety, quality, taste and well-regulated production of Australian-branded agricultural goods—which make them popular and high-value commodities in foreign markets—also make the Australian brand an attractive target for counterfeiting. Counterfeiting is one aspect of food fraud, involving imitation of an authentic food product and infringement of associated intellectual property rights.

Food fraud costs the global food industry an estimated US$40 billion each year. [71] For Australian exporters, the cost of food and wine fraud in 2017 was estimated at over $1.68 billion. [72] By sector, dairy incurred the highest costs ($360 million), followed by wine ($303 million), meat and live animals ($272 million), horticulture ($248 million) and seafood ($189 million).

There have been multiple reports of counterfeit Australian agricultural commodities in overseas markets. For example, Australia’s export beef brands command premium price tags, especially in the Chinese marketplace, but just under half of the Australian-branded beef on offer actually originates in Australia [73] . Other target food commodities include citrus and cherries, infant formula and high-end Australian wine brands. The presence of these substandard, counterfeit goods represents a risk to Australia’s clean and green reputation and may limit our access to certain export markets.

Along with the economic and reputational costs to industry, food fraud can also impact biosecurity, human health and social outcomes. An example of this occurred in January 2016, when two imported nut products were subject to allergen recalls due to undeclared presence of peanuts. One of these products had been repackaged and misrepresented as pine nuts within Australia, and the other was largely (95%) peanuts but was labelled ‘sliced almonds’— both higher value products.

Systemic issues

Combatting food fraud provides an example of the complexity of regulation in relation to the agriculture sector. The broad scope of food fraud is not addressed in a single law and is generally defined as a violation of several laws. [74] This poses challenges for enforcing food laws across all levels of government in Australia.

More broadly, the complex interaction of government, industry and international trading partner-related regulation has been recognised by the Productivity Commission, as in its recent inquiry into regulation in agriculture. The Commission found that the cumulative burden of regulation on farmers is substantial, with ‘a vast and complex array of regulations … in place at every stage of the supply chain—from land acquisition to marketing—and … applied by all levels of government.’ [75]

Industry-led regulatory schemes also place requirements on agricultural producers and food manufacturers across the supply chain. In addition to these domestic regulatory activities, the international trade policy environment and consumer expectations about food are changing. Australia’s trading partners are applying more rules and requirements to food exports relating to food safety, provenance and authenticity.

New technologies will enable increased scrutiny and produce-testing at any stage along the supply chain. As non-tariff trade measures such as these are estimated to be costing businesses up to three times as much as formal trade barriers, ensuring regulatory processes are streamlined will yield significant economic efficiencies.

Blockchain technology can contribute to this effort through providing reliable, secure tracking of provenance, including recording of environmental details (such as temperature in storage), in addition to the payment benefits delivered by blockchain-based smart contracts.

Wine sector

Overview

Australia’s wine sector is one of the success stories of the agricultural sector. Australia is the world’s 5th largest wine producer, and the largest in the southern hemisphere, with 146,000 ha of vineyards. 63% of wine produced is exported, with $2.89 billion in value exported in the year ending September 2019, demonstrating a growth of 7% compared with the previous period. Volume declined by 8% to 774 million litres in this period, reflective of growing demand for Australian premium wines. See the infographic below for a summary of key export markets. [76]

The Australian wine sector is made up of 65 wine regions, with approximately 2500 wineries and over 6,000 grape growers. [77] The sector employs over 160,000 staff and contributes over $45 billion to the Australian economy. [78] It also serves to increase Australia’s reputation as producer of high quality food & beverage products and as a tourism destination.

Figure 6: Australian wine export statistics, year ending September 2019

Source: Wine Australia

Blockchain solutions and opportunities: from vine to international customer

The process of growing, producing and transporting wine is complex, with many different participants involved in the process. Key segments of the supply chain are outlined below.

At most stages of the wine supply chain, there is a need for the transfer of data or accreditations. This presents a tremendous opportunity for blockchain solutions to combine with other technologies—such as the Internet of Things (IoT)—to generate efficiencies and to remove red tape. Some potential benefits are outlined below:

  • Growers
    • Quality data on soil composition and temperature enable better decision-making and opens the possibility of data-sharing with the vineyard
    • Allows for optimisation of cultivation methodology
  • Wineries
    • Real-time sensor data from the production process
    • Automatic generation of production records can expedite audit processes
  • Bottlers
    • Trace information from grower to the bottle
    • Opportunity to serialise or hash each individual bottle on a blockchain
    • Autocheck of labelling requirements with Wine Australia and relevant parties
  • Distributors (both domestic and international)
    • Cold-chain logistics management
    • Inventory tracking
    • Smart contracts to automate payment between members of the supply chain
    • Automation of documentation and regulatory processes
    • Links to accredited buyers or distributors
    • Harmonisation of processes with relevant international agencies
  • Consumers
    • Reduction in counterfeiting through transparency of provenance
    • Consumer can see story of the product from vineyard to glass
    • Promotion of Brand Australia
  • Regulators
    • Harmonisation of documentation for wine export approval for quality and assurance processes and wine export licencing
    • Harmonisation of documentation and provenance information for the Label Integrity Program to demonstrate adherence to international wine-labelling obligations, including use of geographical indications (GIs)
    • Harmonisation of record keeping and testing for compliance with domestic and importing country winemaking standards
  • All participants and stages
    • Opens up opportunity for cheaper and better finance
    • Reduction of risk through transparent provision of data and information
    • Reduction in the number of intermediaries in the supply chain, and opportunity to sell directly to market

Challenges

Despite the significant opportunities presented by using blockchain technology in the wine sector, there are many barriers to adoption. These barriers include:

  • the cost of the solution can be perceived as being higher than the benefit
  • the benefits are obtained by many actors in the supply chain, while the cost may be borne by one or two parties
  • limited interest in, and capacity for, technological adoption
  • general lack of digitisation in parts of the agricultural sector
  • limited access to capital to adopt solutions
  • limited access to digital infrastructure—such as broadband—that can facilitate the technology and its application
  • slow adoption curve, due to low risk appetite
  • limited understanding of blockchain technology and/or a sense that the technology is overhyped or not appropriate for this use case
  • a lack of incentive to innovate
  • uncertainty regarding the impact of increased transparency and unease with data usage, storage and control.

Summary

Blockchain solutions present a tremendous opportunity to add transparency, data sharing and efficiencies to the wine sector. While there are some blockchain pilots operating in the sector, there remains significant opportunity for Australia’s wine industry—and the agricultural sector more broadly—to harness blockchain technology.

It is important to recognise that there are informational, operational and financial impediments to uptake of the technology, both the firm level and more broadly. The agriculture sector and the technology sector will need to work together to navigate these, to ensure successful adoption and implementation of solutions.

Case Study: Mitchell Wines & KPMG

Mitchell Wines is a family-owned boutique winery in South Australia’s Clare Valley, producing dry-grown wines since 1975. Mitchell Wines partnered with KPMG Australia to explore the use of emerging technologies, such as IoT and blockchain, to extract value across grape growing, winemaking and export activities.

The KPMG Origins platform enables supply chain participants to fairly share trusted information. Using blockchain technology, the platform provides an infrastructure of trust for trading partners and integrates with interactive digital applications on both mobile and existing enterprise channels, meeting the varying needs of B2B and consumer segments.

The combination of grower and winery process digitisation through mobile applications, automated data capture and distribution using blockchain, can create efficiency, deliver trust and tell a unique story of Australian and South Australian wine excellence to domestic and overseas consumers. From an operational perspective, bringing all the data into one place helps participants to view their businesses in a new light and enables them to make better and more timely decisions—from analysing historical spray and weather data to fermentation progress and inventory management.

Blockchain technology also has the potential to enable immutable record keeping of winemaking data, to facilitate future compliance and production audit activities. Creating a trusted source of data can also unlock export and import process efficiencies, as supply chain partners digitise in the future. Finally, sharing critical traceability data with supply chain participants also enables differentiation and communication with a broad set of consumers across a variety of markets. Visibility of trusted data across supply chain participants enables everyone to extract value and automate a number of manual and paper-based processes.

Sectoral Showcase 2: Trusted Credentials

Overview of Australian Credentialing sector

Credentials are a type of institutional technology that are produced by the education sector, professional and trade associations, and by government. These certifications benefit consumers by facilitating trust in professional and trade services, and employers by facilitating trusted information about skills and capabilities.

Tertiary education is Australia’s third largest export industry, behind iron ore and coal. And Australia is the third largest education exporter in the world, contributing a significant share to the production and export of credentials and qualifications. International education was worth $35.2 billion to the Australian economy in 2018. [79]

Figure 7: Key statistics on Australia's tertiary education sector [80]

Credentials are an important element in a modern economy. The more complex and developed the economy, the more it utilises efficient and effective credential infrastructure and production. As we move towards an increasingly digitised workplace, it will become necessary to easily and securely prove a person’s identity and credentials.

Australia’s skilled labour markets are dependent upon proof of identity and verified credentials, and the intersection of the education sector and access points into Australian labour markets is the area where credentialing and its infrastructure are most valued.

Blockchain innovation can benefit a major export industry, increasing administrative efficiency and facilitating adoption of digital technology in tertiary education—as well as improve the functioning of Australia’s labour markets; increasing the quality of job matching; and lowering the cost of employment process.

Issues in Credentialing

The potential for credentials fraud is significant, with conservative estimates indicating 25% of people include falsehoods on their résumés. [81] For example, the NSW Inependent Commission Against Corruption's (ICAC) Operation Bosco discovered an employee who had used false academic qualifications, certified by a Justice of the Peace, for over 15 years to obtain senior positions in the public and private sectors. [82]

There have been multiple instances of organised fraud in regard to the creation and sale of fraudulent qualifications, from those targeting specific industries such as construction, [83] to those targeting both university and vocational education-issued qualifications. [84]

Verifying credentials can be a time-consuming process, particularly for those employers who may have to deal with verifying multiple applications by contacting the issuing institutions. It can also be time-consuming and costly for students, who (prior to 2017) had to prove their credentials to new employers via hard copy transcripts, paid for at university credentialing service offices.

Universities have responded to calls to ensure student data is portable in an increasingly digital, globalised environment by establishing a centralised higher education repository. My eQuals, launched in 2017, provides secure access to certified official transcripts and degree documents for 47 universities across Australia and New Zealand and are expanding to non-university higher education providers and TAFEs. Students are able to access their higher education qualification documentation through the online platform, where they can share their records with prospective employers, and other educational institutions around the world. [85]

This has addressed a number of issues in the higher education sector, creating administrative efficiencies and making it easier for students to access their higher education qualifications. However, the qualified trade sector, as well as the professional accreditation sector, may face additional concerns. For example, it is difficult for a member of the public seeking to hire a qualified tradesperson—for instance, a builder or electrician—to verify those qualifications.

a) Verification inefficiencies

For employers, verifying credentials currently takes a long time. Human resources departments spend weeks doing background checks on new employees, creating costly inefficiencies in the hiring process. There is a demand from industry for a streamlined process where credentialing, background checks and safety checks (such as Working With Children Checks) can be completed instantaneously.

b) Market dynamics

The credentials market is expanding with the rise of micro-credentials (mini qualifications that demonstrate skills, knowledge and experience in a given subject area or capability). Industry, employers and students are demanding short courses to quickly address skills gaps, including for rapidly developing technologies such as blockchain.

c) Greater demand from high-risk sectors

High-risk sectors, where a lack of a credentials can have a life-or-death consequence, are particularly interested in this area. There is a use case, for example, in the volunteering, humanitarian and aid work sector, where vulnerable communities need to be protected by adequate credential checks. The consequences of fraudulent credentials are significant in this area.

Credentialing codes of conduct within these organisations, along with peer endorsements, may also allow workers to incrementally prove their trustworthiness using micro-credentialing.

The university sector

In 2016, 41% of Australian 19-year-olds were enrolled in higher education institutions. [86] The qualifications students gain from this study are valuable to students and employers. However, the value of the qualifications could be eroded if employers can’t trust that they are genuine. Securing the reputation of qualifications from Australia’s tertiary institutions is critical to maintaining the $32.4 billion international education market and its flow-on benefits.

Blockchain solutions

Blockchain technology offers technological infrastructure on which credentials can be managed and shared. The ability to record or reference credentials on a blockchain provides benefits to students, education providers, employers and other service providers (including recruitment agencies) in the employment value chain.

Students benefit from full ownership of their credentials. The ability to share credentials (or particular aspects of those credentials) with prospective employers or other entities—without the involvement of the authority that originally granted the credential—would represent a significant change in the way credentials are managed, with possible benefits for privacy and selective disclosure.

Blockchain-based credentials can enable significant efficiency gains, as they can lower the transaction costs for employers and employment service providers in the verification and validation of credentials. Reduced opportunities for credentials fraud would increase the value of those credentials. An easily verifiable credential is likely to be of more value to a student and employer than one which has a higher risk of fraud.

Students will also benefit when they take their credentials into an overseas market, where the ability of foreign employers to verify credentials might be lower than in the Australian domestic market. Inefficiencies in verifying credentials across borders are well known, and Australian credentials providers are well placed to offer students more useful credentials when they are in a global market.

Blockchain-enabled credentials also allow for a more innovative and flexible credentialing industry. Empowering students with ownership over their own credentials will allow them (either independently or in concert with education providers) to build custom mixtures of micro-credentials, professional qualifications, and degrees.

For providers, trusted blockchain credentials also provides an opportunity to integrate with and coordinate around global, mutually recognised credentials.

Case Study: RMIT offers students blockchain-based digital credentials

Since late 2018, RMIT has offered blockchain-enabled credentials to students and RMIT Online learners through an innovative pilot program with their credentials platform partner, Credly. The pilot provides an opportunity to test and refine the application of blockchain in unlocking the full potential for individuals—and organisations—to communicate and discover skills and competencies to a range of audiences.

Students who complete the nominated micro-credentials and online short course from the RMIT Creds and Future Skills portfolio, are given the opportunity to ‘publish’ their earned digital credential to the blockchain, seamlessly providing meaningful data about their earned skills and capabilities. The digital credentials selected for this program—Collaborating Online; Global Leader Experience; Application Package; and; Developing Blockchain Strategy—had enrolments from individuals from diverse backgrounds and experiences.

To date, 55 participants have chosen to save their digital credential on Ethereum, the public decentralised blockchain platform chosen by RMIT for this pilot. Three students have saved more than one of their credentials. Students aged between 21 and 25 represent the highest percentage of blockchain users, but there was fairly widespread engagement from various pilot cohorts, undergraduate, postgraduate and ‘short course’ participants, and from Australian and Vietnam campuses.

One of the key learnings is that many participants do not fully understand the potential benefits of having a blockchain record—of having a streamlined, immediate and verifiable record of one’s skills, competencies or academic credential. To realise sustainable and potential benefits from a blockchain distributed ledger, all agents and players within the ecosystem—students, staff, education providers, employers, government—must be convinced of the benefits, including verification, increased efficiencies and speed of transactions.

Deputy Vice-Chancellor Education and Vice-President, Professor Belinda Tynan, said:

… we’re exploring the latest application of this technology as part of our commitment to enhancing our students’ experience. This pilot is a good example of how RMIT works with industry to provide real-world benefits to our students, affording them … better tools to communicate the industry-relevant skills and experiences needed for economic and life opportunities.

Challenges and opportunities

Challenges exist regarding the implementation and use of blockchain technology across the economy.

In terms of security, concerns exist over the security and privacy of user data. Currently, learning institutions collect and maintain data on student learning. Blockchain provides the opportunity for the decentralised storage of learner data, accessible by the learner alone. This may be undermined if a single issuing authority has access to every blockchain, via a centralised database service. Data security will therefore be affected by the business model adopted, whether that be a monopoly or competitive market.

Regulatory challenges exist for centralised standards and oversight. It is particularly difficult to edit or alter an existing blockchain, meaning that retrospective regulation on blockchains will be difficult to enforce. Proactive regulation is therefore essential. Regulation may be created in collaboration with international standards and bodies, such as the Internet Engineering Task Force (IETF). [87]

Credentialing outside of an official learning institution will remain a difficult endeavour, unless the blockchain technology can be adequately taken up by workplaces themselves. Skills gained within the workplace are traditionally hard to credential, and this may persist under any new model adopted.

Everyone in the credentialing ecosystem needs to see the value of blockchain in credentialing: each stakeholder, including employers, learning providers and students, needs to learn how blockchain can benefit them individually. Not all students currently understand why blockchain is needed or understand its value. Employers are also sceptical of new credential verification technology, if they do not properly understand how that technology works.

Blockchain technology may play a role in the future of the credentials sector by offering a more effective, scalable and secure alternative platform for the production and use of credentials. In doing so, it has the potential to improve the functioning of Australia’s labour markets, increasing the quality of job matching and lowering the cost of HR functions.

Opportunities exist across the economy to develop and deliver trusted credentials using blockchain technology, including:

  • high school education and equivalencies (completion certification)
  • higher education credentials (course credits, graduate certificates, diplomas, bachelor’s degrees, higher degrees)
  • vocational education credentials and trade certifications (hairdressing, electrician, builder, etc.)
  • industry and professional association-based qualifications (e.g. Accounting (CPA, ACA), Law (the Bar), Finance (FINSIA))
  • proficiency qualifications (for example, languages and driving)
  • occupational licenses (for example, surgeons, dentists, pilots, teachers, electricians)

Opportunities exist for all stakeholders in the credentialing sector, including students, employers and education providers. Students have the chance to gain:

  • ownership and control over their own data (transcripts, certificates)
  • faster methods of verifying credentials to prospective employers
  • the ability to translate credentials for overseas jurisdictions (including translation into foreign languages and/or credentials frameworks)
  • updated skills verification in real time that can be shared with prospective employers or used to secure work experience placements.

Learning providers have the chance to gain:

  • global collaboration between institutions (the ability to recognise credentials from any country at every institution)
  • the ability to implement micro-credentialing to showcase student skills over time
  • cost and time savings in the issuing of certificates, transcripts and other credentialing resources
  • the ability to recognise and verify foreign credentials

Employers have the chance to gain:

  • trust in credentials
  • cost savings in human resources departments
  • verification of soft skills and micro-credentials in jobseekers
  • faster verification and background checks of new employees

Case Study: Australian Red Cross and Typehuman - Making it easier to take humanitarian action

As part of the Australian Red Cross’ (ARC) commitment to create a nation that takes humanitarian action, ARC facilitates the deployment of volunteers in support of community outcomes and is investing in technology that supports humanitarian outcomes via new initiatives such as Humanitech.

In mid-2018, motivated by an expensive and slow process for conducting background checks of volunteers and humanitarian workers, the Australian Red Cross partnered with Typehuman to explore the opportunity for blockchain credentials: the goal being to streamline the background check process, and to increase the sector’s capacity to take humanitarian action.

Background checks for organisations such as the ARC involve performing police checks, verifying Working With Children Checks and other relevant qualification verifications. While technology options exist, they are unacceptably limited in their credential coverage, and in their future ability to extend to other uses. Further, 50% of volunteers are participating, with more than one organisation—an inefficiency duplicated across the sector.

Solving this challenge in its entirety would require credentials such as Working With Children Checks to be offered natively by issuing organisations, something not immediately actionable by the project team. However, because background checks are duplicated across the sector there was an opportunity to support an individual’s mobility between organisations by offering blockchain credentials—recognising the background checks already performed along with other experiences and qualifications gained along the way.

Twelve months on, the project team has found blockchain credentials to be a viable technological solution to this problem. Other organisations share this view, becoming pilot users of a blockchain credentialing solution. As a result, the ARC is commercialising this solution and planning an early 2020 launch, laying the foundation for streamlined background checks and civic innovation.

It is well established that the limiting factor for the growth and utility of blockchain credentials will be whether other organisations opt to issue and recognise them: a digital coordination problem. To address this, a growing coalition of organisations (the Trust Alliance) has come together to shepherd the emergence of an open credential ecosystem and to address the digital coordination problem. Members of the Trust Alliance include the Australian Red Cross, Oxfam Australia, RedR Australia, Telstra Foundation, Swinburne University, RMIT, Bridge of Hope, and EWBA.

Sectoral Showcase 3: Building competition in the financial sector through transferable Know Your Customer checks

Overview

Building competition in the Australian financial system is a priority for the Australian Government. Australia has one of the most concentrated financial services systems in the world. In a sector where products and services often involve complex fee and interest structures, it is vital that barriers to switching providers be minimised, so that there is every incentive to offer competitive products and to put consumer interests first.

The Productivity Commission’s Inquiry into Competition in the Australian Financial System [88] highlighted the low levels of switching by bank customers, with one in two consumers still banking with their first ever bank and only one in three having considered switching banks in the past two years. This consumer inertia can make it harder for new competitors—including neobanks and fintechs—to gain market share. It also means consumers may not be getting the best possible deal from their banks.

There are a number of factors that may contribute to low rates of switching by retail consumers. In a report examining consumer switching behaviours [89] , Deloitte noted that switching is often not difficult for most products and not as difficult as people perceive. However, low rates of switching persist.

One of the frictions which may limit consumer switching is the process of customer due diligence (CDD). CDD requirements—often referred to as Know-Your-Customer (KYC) checks—are set out under Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. Regulated businesses are required to identify and verify their customers’ identity; provide reports to AUSTRAC about financial transactions; and implement systems and controls to identify, mitigate and manage the risk that their business will be exploited for money laundering, the financing of terrorism, and other serious financial crimes.

Not only does compliance with CDD requirements generate costs for financial service providers when they take on new customers, there is some evidence to suggest that the process provides disincentives for consumers to switch due to the time and effort required. [90]

Blockchain technology may provide an opportunity to reduce costs and to increase efficiencies in the provision of financial services, enhance the competitiveness of new market players, and support higher rates of consumer switching. As the use of blockchain in financial technology develops beyond cryptocurrencies, it presents opportunities to enhance consumer outcomes in retail banking, including through facilitating the KYC process.

The Know Your Customer challenge

It is vital that all financial institutions are able to verify that their customers are who they say they are. The penalties imposed on entities who fail to carry out due process in complying with their AML/CTF obligations are significant.

However, many Australians setting up a bank account have multiple existing accounts for which a KYC check has already been undertaken. When a bank signs up a new customer, they may be required to undertake these checks afresh if they are not able to rely upon a previous KYC check. It is clear there are opportunities to provide better outcomes for consumers and financial service providers through the sharing of KYC information.

The value of allowing consumers to share the results of KYC processes in financial services was identified in the Australian Open Banking Review. Recommendation 3.4 of the Review noted that KYC processes are slow and cumbersome, and that allowing customers to instruct their bank to share the result of an identity verification performed on them could generate efficiencies in the system.

These issues were also identified by the statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), tabled in Parliament in April 2016. This review recognised that an expanded ability to rely on the identification of another party would be an important measure that could deliver greater efficiencies and significant regulatory relief for reporting entities under the AML/CTF regime.

On 17 October 2019, the Government introduced the Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2019, which expands the circumstances under which regulated entities can rely upon the CDD undertaken by another entity. If passed by the Parliament, this legislation would allow entities regulated for AML/CTF purposes to rely on identification and verification carried out by another regulated entity—where appropriate to the money laundering and terrorism financing risk, and where the records of the verification procedure can be made available on request. To rely on the CDD undertaken by another entity, reporting entities will need to enter into written arrangements. These agreements will be subject to undertaking due diligence on the third party’s identification and verification procedures.

Under these arrangements, the relying entity will not be held liable for one-off breaches of compliance committed by the relied-on entity, provided that due diligence has been conducted on their procedures and the relying entity has obtained the relevant customer identity information and other documentation from the relied-on entity without delay.

Internationally, the Financial Action Task Force (FATF), the global AML/CTF standard-setting body, is developing guidance to clarify how digital identity systems can be used for KYC [91] . A recent FATF consultation paper identified the potential of digital identity systems to facilitate and enhance KYC processes.

The opportunity for blockchain as a KYC utility

Blockchain could be an effective solution to support the sharing of KYC information—allowing the results of KYC checks to be transmitted securely, at speed and with the highest level of confidence.

Not only could a blockchain solution help to minimise duplicative checking, but it could also provide an opportunity for financial institutions to simplify their record keeping and remove unnecessary manual effort in their AML/CTF processes. KPMG estimates that approximately 80 per cent of KYC/AML resources are spent on information gathering and processing, rather than on assessing risk [92] . The benefits would not be limited to inter-bank switching: a significant proportion of duplicative KYC resources are deployed within financial institutions.

The exceptional level of data integrity provided by a digital signature over blockchain may give financial service providers confidence that further validation of KYC data can be minimised, depending on the risk profile of the customer, and on the nature of the service the relying entity will be providing. It would also facilitate a high level of transparency in the provision of KYC data and allow it to be shared and updated in real time.

KPMG recently worked with Bluzelle Networks, a consortium of three banks and the Singaporean Info-Communications Media Development Authority to develop a proof-of-concept KYC utility on a blockchain platform [93] . While challenges would need to be addressed for such a utility to be used more widely, this proof-of-concept demonstrated viability of a blockchain solution and the efficiency gains it could potentially deliver.

Using blockchain for transferable KYC has the potential to enhance competition in the financial sector by making it easier and faster for customers to switch providers. Combined with the Consumer Data Right that the Australian Government is implementing, there is potential for the process of switching banks to become as simple as a single click, where—subject to robust privacy restrictions pertaining to the use of their data—a consumer may consent to the transfer of their transaction data and their identity verification, together, from one financial service provider to another, subject to the receiving provider choosing to accept and rely on that information.

A fast and secure KYC transfer utility could also enable challenger banks and other fintechs to increase their competitiveness. The 2019 EY Fintech Australia Census reported that three quarters of Australian fintechs regard transferable KYC as an effective initiative to support growth in the Australian fintech ecosystem.

The importance of mitigating risks associated with anti-money laundering and counter-terrorism financing will need to be considered alongside any developments to ensure that any proposals do not compromise the integrity of Australia’s AML/CTF regime. Rather, through close collaboration, efficiencies could be explored which both strengthen the AML/CTF regime and reduce regulatory burden.

Footnotes

[64] ACS Data61 Blockchain 2030

[65] ACS Data61 Blockchain 2030

[66] Agricultural overview: September quarter 2019

[67] ABARES 2019, Agricultural commodities: September quarter 2019

[68] Australian Bureau Statistics, International trades and Services, Australia, cat. No. 5368.0, Canberra, and ABARES 2019, Agricultural commodities: September quarter 2019

[69] ABARES 2019, Agricultural commodities: September quarter 2019

[70] ABARES 2019, Agricultural commodities: September quarter 2019

[71] CSIRO 2017. Food and agribusiness: A roadmap for unlocking value-adding growth opportunities for Australia.

[72] FIAL 2017. Counting the cost: Lost Australian food and wine export sales due to fraud.

[73] Beef brands turn high-tech to fight food fraud thieves

[74] Spink, J, Hegarty, V, et al. 2019. The application of public policy theory to the emerging food fraud risk: Next steps.

[75] Productivity Commission 2016, Regulation of Australian agriculture, Report no. 79, Canberra.

[76] Market insights – Australian wine exports

[77] (external download) Economic Contribution of the Australia Wine Sector (16 October 2019) (1.9MB PDF) (Website: Australian wine's economic contribution)

[78] (external download) Economic Contribution of the Australia Wine Sector (16 October 2019) (1.9MB PDF) (Website: Australian wine's economic contribution

[79] (external link) Education export income by country 2018 (780KB PDF) (Website: Department of Education - Research snapshots)

[80] Data source: Department of Education, Skills and Employment

[81] Résumé fraud is a costly problem, but one you can manage

[82] Résumé fraud is a costly problem, but one you can manage

[83] 'Fake tradies': Husband and wife alleged ringleaders in qualification fraud

[84] The great Aussie degree scam: Forgers raking in thousands selling bogus qualifications

[85] Education Providers

[86] Grattan Institute, Mapping higher education

[87] Internet Engineering Task Force (IETF)

[88] Competition in the Australian Financial System

[89] Open Banking: Switch or Stick? Insights into customer switching behaviour and trust

[90] World Bank: Private Sector Economic Impacts from Identification Systems

[91] Public consultation on FATF draft guidance on digital identity

[92] KPMG: Blockchain KYC utility

[93] KPMG: Blockchain KYC utility