Blockchain is one of the most anticipated new technologies in the corporate world, with the potential to reshape the operational and regulatory landscape in a number of industries. The technology offers the promise of more accessible, more transparent and secure data processes. Uses for blockchain under development include trade reporting; clearing, confirmation, validation and settlement; recordkeeping; monitoring and surveillance; risk management; audit; management and financial accounting. Another anticipated use for the technology is regulatory compliance.
New Regulatory World
Since the financial crisis a decade ago, new regulations have been implemented across the world which require structured and well-defined reporting of risk data. Keeping pace with the ever-shifting regulatory environment can be a challenge for many firms, as compounded by the fact that aggregating and automating data can be troublesome due to outdated IT systems and the backlog of information in different systems due to regulatory and legal barriers. As a result, many companies – especially smaller organizations -still rely heavily on manual processes.
Regulatory challenges don’t just exist for the private sector, in many cases, regulators themselves can encounter issues. They are often ill-equipped to manage the datasets coming in, which can affect their ability to provide effective data analysis, as well as a prompt and effective review process. It’s not uncommon for some regulators to still use paper formats such as PDF files to receive information.
How Will Blockchain Help Change the Landscape?
Blockchain has the ability to alleviate many of the bottlenecks and challenges organizations face in their efforts to keep up with today’s regulatory landscape. Blockchain data is shared by design, meaning regulators wouldn’t need to gather, store, reconcile and aggregate the information themselves. All transactions within the blockchain are documented immutably on the distributed ledger, which provides a precise and secure, as well as permanent audit trail. Having access to one shared permanent record would also eliminate the need for regulators and firms to maintain their own private records, resulting in significant industry-wide cost savings. It would also improve the speed and quality of the regulatory review process as it would eliminate the need for reconciliation.
Another potential area where blockchain can have a positive impact is in know you customer (KYC) rules. KYC tasks are generally repetitive and often result in inconsistencies in data and duplicate processes. The use of different systems can frequently lead to the use of manual solutions to bridge end-to-end operational procedures. The immutability and transparency of information captured within a blockchain means all necessary data can be recorded in shared ledgers and made available in near real time. The technology will also facilitate the ability of regulators to manage the process, as all steps would be easily traceable on the blockchain.
Interest in blockchain continues to grow – and will accelerate as more live solutions make it to market. Industries that are process-heavy or involve multiple parties expect to be able to benefit greatly from the technology and the biggest challenge will be integrating it into current business processes and workflows. Once set up, however, blockchain offers the promise of transparency and data security like no other technology has before.