The blockchain is one of the most trending topics in both the technology sector and financial service sector. With the potential to revolutionize many business processes, it shall bring more transparency, accountability and security to data with added benefits of saving a lot of time, manpower resources and cost.
Blockchain is an open and distributed ledger where two parties can record transactions between them in verifiable, secure and permanent manner. The blocks (records) are secured by the cryptographic hash code, timestamp and included in the chain and cannot be altered as it would require alteration of all subsequent blocks which requires very high computing infrastructure.
Possible applications of blockchain include financial transaction validation, risk management; audit management; and regulatory compliance. The feature of being immutable, real-time and transparency makes blockchain capable of recording data in shared ledgers. This secured technology has made many question the traditional banking system and now, it has shown potential to change the compliance structure.
With its ability to maintain timestamps, Blockchain can record a series of documents immutably and that would also create an audit trail for regulatory bodies to verify the compliances. The secured nature of blockchain would allow private organization gives regulators real-time read-only access to their compliance documents saving time, effort and cost and improve the accuracy, transparency within the system.
Easy verification of partners and customers
With immutable and real-time nature of blockchain database, it can be used to save customer information on the distributed ledger. This will ease out the process of Know Your Customer (KYC). In financial services, presently it takes many days in onboarding the new customers. It involves thorough background check of the customer. With customer data already present on the blockchain, the KYC process would be completed with a click of a button. Any changes in the customer data will be communicated immediately to the other partners in the blockchain. This system would help in strictly implementing anti-money laundering owing to secured and real-time access to customer data. This would equip banks and financial services with better loan dissemination decision process and avoid the risk of defaulters.
One of the most talked about the application of blockchain is “Smart contracts”. Smart contracts are self-executable contracts with both the parties, namely seller and buyer entering into terms of the agreement without the intervention of any legal system, or third-party regulatory body. These coded agreements exist across a distributed, and decentralized blockchain network. Smart contracts make the transaction secure, transparent and permanent.
With many benefits of Blockchain in compliance management, the major challenge in the adoption of the technology is maintaining a dedicated infrastructure for secured data access and deciding the extent of participation in their private blockchain network as the technology is based on distributed ledger secured by many individuals.Add to favorites