Blockchain is currently applicable in most industries. The financial industry is one of the primary beneficiaries. The fact that blockchain is digital, decentralized, and immutable makes it very ideal when it comes to financial transactions. Its technology framework makes it suitable when it comes to keeping records, transactions, and doing data communication, which is the elephant in the room in the financial industry. In financial organizations, blockchain is widely adopted in the ledger-type sectors such as payments, money transfers, and financial exchanges. Many institutions see it in terms of a cost-reduction measure. Some of the ways blockchain ensures financial compliance include:
Smart contracts help in regulation
Smart contracts are one of the critical things that are used in doing transactions in the blockchain network. Through smart contracts, both parties must comply with the conditions of the contract before the contract is executed. This helps to protect the particular institutions from fraud or irregularities, which may lead to losses in the financial industry. Smart contracts ensure that one has safe transactions as through it, you can set rules, conditions, and requirements that have to be met prior. Smart contracts have powered some software such as Anti-Money Laundering Software by Fiserv. This has helped in mitigating risks, especially when it comes to cross-border transactions.
Blockchain helps a lot when it comes to regulatory efficiency. It can be very useful when it comes to transparency, data management, Identity and authentication such as KYC, and detecting suspicious activities. Doing this can be very time consuming and needs a lot of paperwork and budget, which is generally more expensive. Traditional financial institutions, such as banks need customers to verify their identity by providing particular documents.
Banks and financial institutions can take advantage of blockchain technology to do an identity registry. With that, it will save the bank from having many digital files as they can just have a single cryptographic identity or record the documents of the customers on hashes. Blockchain can also make it easy to manage customer information.
That will increase efficiency and help the financial institution to save on costs, do every process faster, and get more profits.
Data is one of the key components of any business as businesses rely on it when it comes to decision making. Blockchain technology can help in collecting data, tracking data, and informing when something is different and fishy. The customer file can then be updated accordingly. This is especially important when it comes to anti-money laundering (AML) programs which is very sensitive when it comes to financial institutions.
In addition to collecting and tracking data, blockchain can be used for the storage of data safely. The data will be stored as a distributed ledger throughout the network to ensure more latency.
It is one thing to collect data and another thing to protect it. Financial institutions face the challenge of data protection as it can be hacked, or can be manipulated to make it suit a certain condition. One of the best things about blockchain is that its data is immutable. Banks can enjoy this as they will be confident that customer information is accurate and immutable. There is also increased transparency which makes everything much easier.
Apart from smart contracts, there are many other ways that blockchain can be used to increase compliance. The distributed ledgers which the network uses can be vital in documenting and tracking the main regulatory processes of banks and other financial bodies.
As much as blockchain has its own set of weaknesses, the strengths outweigh the weaknesses. Since it is getting highly adopted, many employees will have to venture into learning the skills so that they can be relevant. The main disadvantage of blockchain in organizations is that it is non-transferable. This may be inconvenient when you want to transfer information.