Tokeny has launched an on-chain digital identity service that investors can use to demonstrate KYC and AML compliance. The goal is to provide a faster, more efficient, and more cost-effective whitelisting process.
As STOs need to comply with EU financial markets laws and regulations, issuers have to deal with the full load of Anti-Money-Laundering (AML) and Know-Your-Customer (KYC) requirements. Tokeny, a Luxembourg-based end-to-end platform to issue, manage and transfer security tokens, has set out to ease the pain and launched InvestorID.
With InvestorID, European investors can validate investment access with an on-chain digital identity. Thus, security token issuers can verify if an investor is eligible for their offering and investors can assess which investments they can legally participate in.
Buy-side advantages: Investors can quickly assess opportunities
InvestorID enables users to transparently prove their regulatory compliance, while also protecting sensitive and private investor data.
Tokeny CEO Luc Falempin says, “On the buy-side, it’s fundamental for investors to know they are respecting the necessary rules and regulations in relation to security trading. InvestorID relieves this worry and enables individuals and financial institutions to seamlessly create their on-chain and validated identity. This allows investors to trade tokenized securities in total confidence.”
Investors need to establish their identity only once and can then use it to apply for any STO compatible with Tokeny’s T-REX standard.
InvestorID creates the digital identity using a smart contract, that links the identity of the investor directly to his/her wallet. Investors are also able to manage access rights. Thus, they have the power to decide who can see their information and they can restrict access to specific personal details.
The system adds an extra layer of security, as the digital identity can be used to recover assets. In case an identity is lost, the investor can prove his identity again and thus recover assets linked to that identity.
Sell-side advantages: faster and more cost-effective whitelisting process
On the side of the token issuer, investorID enables businesses to quickly know if a specific investor can participate in the offering from a regulatory perspective. After confirming the identity, all relevant regulations in the respective jurisdiction can be enforced.
To comply with European KYC regulations, security token issuers are required to conduct certain background checks. The goal is not only to verify the investor’s identity but also to prove the investor’s financial circumstances.
By law, Issuers are required to create a so-called “Whitelist” – a list of investors who meet the STO’s requirements and are approved by the issuer. After adding the address of the shareholder to the token’s whitelist, the issuer will be able to mint tokens for them.
Falempin says, “By creating investorID, issuers can act in full confidence that their securities are being accessed and traded compliantly. There wasn’t a solution on the market that accurately identifies the different stakeholders on the blockchain infrastructure, but it is a mandatory piece in order to confirm with securities laws in Europe.”
The current pan-European legislation, as well as national legislation in Liechtenstein, make it imperative for investors and issuers to be fully compliant. Thus, token issuance platforms need to ensure seamless KYC processes that are easy, fast, and cost-effective.
Tokeny is not the only provider recognizing the need for faster and more efficient identification services. KABN, for example, has launched “KABN ID” with a similar objective: streamlining the whitelisting process by creating a digital investor ID.