Blockchain and regulatory compliance: a match made in heaven…or is the honeymoon over?

Whereas cryptocurrency may have created the environment under which Blockchain technology was introduced, by no means are these two technologies codependent. Rather, Blockchain is a byproduct of people’s inherent interest in streamlining transactions and not strictly limited to cryptocurrency. And while the Blockchain is shifting the transactional landscape, it’s also poised to disrupt the financial services industry.

Blockchain – More Than Just Bitcoin

As soon as data is saved into a Blockchain, it can’t be changed or deleted except as allowed by the chain’s validation algorithm. This makes Blockchain particularly attractive to users as a method for the transfer of any digital asset, but this isn’t limited to just bitcoins or other digital currencies. New Blockchain applications are shifting financial services markets in yet-unknown ways. But the fact remains that competing in the evolving landscape of global finance means making sure that your operations don’t become outdated.

Blockchain and Compliance

Globally, businesses spend about $436 billion each year on compliance. And with new Risk and Compliance rules, including KYC (know your customer) and AML (anti-money laundering), seemingly being developed every day, it’s no surprise that I’m often asked about how companies can get a leg-up on the increasingly complex regulatory environment. Maintaining this information on a Blockchain ledger offers clear benefits, as the chain would maintain records of procedures and compliance activities for each client in a secure and immutable way.

Blockchain and Regulators

Blockchain technologies can improve private regulatory compliance, but the Blockchain can also help regulators. This is possible because Blockchain lends itself to the improvement of compliance processes, as it can be used to help compliance officers keep track of the steps required by complex regulations.

Agencies can maintain near-real-time access to secure compliance-related data held on the blockchains of regulated financial organizations. This would allow regulators to stay ahead of the game, as opposed to analyzing information post facto. Altogether, the effective application of Blockchain technology can drastically reduce the time, cost, and effort that financial institutions spend on regulatory reporting while also improving the quality, accuracy, and confidence of this process.

Blockchain is No Silver Bullet

Blockchain is promising, but it’s not quite mainstream. Relevant stakeholders such as an organization’s board of directors, risk committees, regulators, and other key leaders may not be so keen to add Blockchain to their enterprise technology suite just yet. Often, it is because these people are naturally slow to adopt innovative new technology as a matter of corporate culture. This gives rise to a natural need for independent audits to provide assurance, or confidence, for all stakeholders in any operational process.

Financial institutions considering the Blockchain must balance the potential costs against the known risks, which includes inherent challenges for internal auditors, including:

• Technical Competency Issues. Blockchain is new, and most IT audit departments simply don’t have the relevant experience necessary to run these systems.
• Blockchain is Untested. It was invented within the first ten years after the turn of the millennium, whereas many reliable enterprise software applications have been under development for decades. Audit teams have not had the time they need to use, repair, and test Blockchain platforms in the same way as other technologies, so adoption is slow.
• Non-Transferrable Control Methodology. For the most part, the processes that have governed best practices in internal and external audits are exchangeable. However, the control, access, and administration of a Blockchain system is non-transferrable once the governing programming is established.

At the end of the day, implementing any new technology can be risky, but leaders in the evolving global financial services marketplace must think out of the box if they’re going to compete effectively. Smart leaders in banks, insurance companies, and other financial institutions are quickly figuring out how to strategically leverage blockchain. This may require investing in updated business processes and technology systems, as well as becoming comfortable with collaborating on projects with external partners, customers, and even competitors.

About Yospeh Elkaim:

Yoseph Elkaim ACAMS is an internationally recognized compliance authority, web show host, author, and keynote speaker in the areas of National Security, Corporate Corruption, Financial Crimes, Sanctions, Money Laundering, CyberSecurity, and Business Risk. He is the former Chief Of Intelligence for the Central Intelligence Agency’s Global Counter Threat Finance and Economic Crimes task force having deployed six times to active theaters of operation. As the co-founder of OmniLabs Advisory Group, an American worldwide management consulting firm, both he and his team publish articles, and books while both lecturing extensively and conducting qualitative and quantitative analysis in the areas of Business Operations, Regulatory Governance, Artificial Intelligence, Crypto-Currency, Emerging Technologies, and Vulnerability Risk Assessments across both public and private sectors. Through on-air media contributions, publication of articles, speaking engagements, seminars, webinars, workshops, and podcast appearances, OmniLabs clientele includes 70% of the world’s largest corporations and an extensive list of governments and non-profit organizations.