As the process of digitizing financial instruments continues to take shape, blockchain looks to change how the banking industry manages compliance responsibilities.
According to Deltec Bank, Bahamas – “Smart contracts, digital assets, and programmable money can take the benefits of a distributed ledger to an unprecedented level of connectivity.” Assets, products, and holdings all can see different processes develop in the market so that each touchpoint brings value.
Because the banking industry can use blockchain to shift society’s definition of value, changes to regulatory compliance activities are necessary. Governments and banking institutions face a significant challenge in the future. Not only do the banks need to keep up with the complexity and pace of changing regulations, but the legislative bodies must also manage to update old laws so that they’re reflective of new ideas.
Why Is the Future of Compliance Such a Challenge?
The banking industry creates a unique challenge for global governments with blockchain: currencies can become borderless.
People have the option to tokenize their fiat currency, and then send it through the blockchain as a transaction to someone else. By eliminating third-party interventions, the cost of such an operation is negligible.
That is why the future of compliance must be blockchain. Whatever unique compliance or governance attributes must receive tracking can get programmed directly into each digital asset.
Since automation in data reporting and verification occurs using this approach, the process streamlines to create better regulatory oversight. Fewer issues with operational friction combine with error elimination in real-time settings to create a better audit in the banking industry.
Blockchain also gives banks to create and enforce incentive structures that can improve the governance of the network.
How Blockchain Keeps Individual Firms in Compliance
Traditional Know Your Customer processes are duplicative and complicated. Blockchain allows individual firms to create and manage specific identities, grant permission to multiple participants, and improve the flow of documentation with a single investment.
Each set of data that someone enters into the blockchain becomes a transparent, verifiable element that can prove compliance in real-time situations. That means the files created with this technology get shared faster and with greater accuracy.
This data produces analytics that banks can find helpful in multiple ways. Use cases for risk assessment are already taking place in the industry.
The KYC blockchain data files could even have a marketing benefit to consider for some banks. By reviewing the activities and decisions of existing customers, it would be easier for the sales department to find more products that would enhance the customer experience.
The future of compliance with blockchain may look like multiple disparate chains that must work together in a variety of environments to track analytics. These processes could track any form of data because of the way it creates a transparent audit trail.
Institutions that embrace blockchain first are the most likely to see positive benefits from their investment. Since it is such a useful technology, it may not take long for all governments to use this approach as their standard method of determining compliance.
Disclaimer: The author of this text, Robin Trehan, has an undergraduate degree in Economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.