According to Andrew Ryu – executive chairman of Graph Blockchain Inc, financial institutions around the world have to go through regulatory processes. This should be done by following certain rules and regulations to achieve the desired results with little or no malfunctions. These processes are to help financial institutions conduct business in a compliant regulatory environment. The problem here is that these processes are very expensive and difficult to handle manually, says Andrew Ryu. This is why over the years financial institutions and regulators have been searching for reliable solutions that will be better and more cost-effective. Financial services have been using technology to help banks and other financial institutions to act following regulatory needs.
Regulatory Technology (RegTech) can simply be defined as the management of regulatory processes through the help of advanced technologies. Over the years in the financial institutions, RegTech has become very important in the industry. With the increasing demand and expansion of the regulatory environment, RegTech has been on the lookout for effective ways to operate. Users in RegTech can easily backup, secure and monitor information from anywhere since it is cloud-based and there is an assurance of information management and control to some extent. All of which is done through technologies such as artificial intelligence, big data, blockchain and data mining. With the use of RegTech, all the processes that financial institutions have to execute manually are now being automated. Operational barriers, high cost, lack of resources and the difficulty of handling manual processes are some of the problems RegTech is battling with.
For regulatory purposes, financial regulators globally are considering blockchain technology due to the expensive cost of doing compliant business. Irrespective of how big or small an organization is the cost of compliance is always the same which is very expensive and keep increasing with time. To reduce cost and help businesses comply with the regulations financial regulators around the world want to ensure collaboration with organizations that uses cloud-based computing technologies or software-as-a-service which is what the RegTech ecosystem is made up of. The coming together of RegtTech companies, regulatory bodies and financial institutions to easily share information with cloud computing. Even though they are yet to fully understand how these technologies operate.
Blockchain offers various advantages such as cost-effectiveness, faster processes, transparency and decentralization which is already altering the traditional ways of doing business. Blockchains are now being used in various areas one of the most popular is cryptocurrencies where it is being used as a distributed ledger. Even in banks financial services use it as distributed ledgers and is also used to improve processes and to simplify complicated procedures. Blockchains are a list of records that keeps growing and all these records known as blocks are connected through cryptography.
Banks can use this technology to provide their clients with quicker processing of a payment, transparent operations, low cost of performing business and inter-bank transactions. According to Andrew Ryu, this technology can help increase productivity and provide an easy and secure platform to share information across various financial institutions as the client information is being stored on a decentralized block in compliance with regulations. These are just some of the benefits of blockchain in RegTech though this system may take time for it to be developed for banks.
No doubt all the present problems financial institutions are facing concerning Know Your Regulations (KYC) and Anti-Money Laundering (AML) can be solved with blockchain technology. Transactions that are carried out on blockchain cannot be changed and there is transparency which makes it easy to monitor transactions and eliminate any fraudulent activities. The operational issue with KYC is similar to that of AML and since the blockchain transactions are unchangeable, the issue can be resolved. With blockchain technology, there will be no need for manual processes as everything will be automated and done digitally.
Let’s discuss the importance or advantages of blockchain to financial institutions and regulations and the RegTech ecosystem.
For Know Your Regulations and Anti-Money Laundering
As part of KYC and AML regulations, every financial institution needs to collect information about their clients before doing business with them. All this information that is collected from clients should be updated regularly which can be time-consuming and expensive. In cryptocurrency, the AML software has been made in such a way that transactions can be effectively monitored. Another issue in this part is the identity management crisis which can be tackled with blockchain. Provision is already made with blockchain technology for a user to securely authenticate their identity through biometrics and analytics that comply with regulations.
For Monitoring Transactions
Blockchain technology has been used to monitor the transactions of cryptocurrencies on crypto exchange platforms and due to its transparency is easy to detect any fraudulent activity. With this technology, it will be easy to monitor the transactions of clients in real-time and notice any suspicious transactions or activities.
For Keeping Record
The data or pieces of information collected from clients mostly end up not being useful due to large masses of unstructured information. With blockchain, this issue can be resolved more effectively. The technology provides useful and transparent information of users with part of the distributed ledger. With this ledger, there is easy access to clients’ information for internal use which can be used for auditing and are fully secure and protected from hackers. With blockchain whenever there is any transaction in any institution a piece of updated information is stored on the ledger which is made available for other institutions to some extent. The information in this ledger is not centralized but rather decentralized being distributed to all computers.
As you can see there are various benefits blockchain technology offers RegTech companies, financial institutions and regulations. And with the implementation of blockchain in RegTech different problems the financial institutions are facing can be overcome, says Andrew Ryu. There will be quick processes of transactions that will be cost-effective using blockchain technology. The blockchain helps to eliminate fraud and third-party involvement in making transactions which makes exchange cheaper and faster than traditional means of exchange.