Blockchain for banks
Blockchain technology for productivity gains in banking compliance
According to an annual survey conducted in 2020 by Thomson Reuters, the top three challenges for banking compliance revolve around regulatory developments, budgeting and resource allocation, and data protection.
The cost of compliance continues to rise. Indeed, without a competent, well-resourced and technology-aware compliance function, companies are unlikely to be able to manage and mitigate regulatory challenges. New technologies could bring productivity gains while cutting costs.
In Switzerland, the new laws on financial institutions (LEFin) and financial services (LSFin), which come into force in January 2020, impose new compliance and auditability standards in particular, which are difficult to meet without new technologies. The increase in requirements implies administrative work that needs to be optimized. The burden of administrative work is heavy and growing, as shown by theAccenture "2019 Global Financial Services Consumer Study", with almost two-thirds of respondents confirming that some compliance responsibilities in the "second line of defense" are now being transferred to the "first line". Faced with these challenges, there is a need to accelerate the digitization of banking compliance.
The benefits of blockchain for the industry
Emerging technologies such as blockchain offer significant potential for transforming operations and regulatory productivity, highlights the Deloitte report "The Future of Regulatory Productivity, powered by RegTech". By improving compliance productivity through process efficiency, companies save on compliance-related costs. Generally speaking, a blockchain platform for compliance enables an immutable and aggregated register, a more efficient compliance process notably for KYC / AML and also for transaction reporting.
In terms of data protection, decentralized registry technology increases the level of security and reduces the number of errors, enabling multiple transactions to be carried out with complete confidence. At a time when cyber security is a priority, information sharing between parties is secure, and entities retain control of their data: the technology enables information to be stored encrypted, while allowing information to be shared intelligently with selected entities. Entities or individuals thus have complete control over what information they share, and with whom. According to the PwC Global FinTech Survey, financial institutions are increasingly inclined to integrate blockchain technology into their systems over the next few years.
Streamlining relations between independent asset managers and custodian banks
Within banking compliance, there is one aspect in particular where the application of blockchain deserves particular attention. Today, the relationship between independent asset managers and custodian banks is largely impacted by compliance management, and processes are sometimes still complex and repetitive. Onboarding with a custodian bank requires several hours' work, and for some is still done manually. Compliance documents are stored heterogeneously by the banks. Despite the beginnings of digitization, each entity uses its own tools and standards. Exchange between platforms is impossible, and updating data is complex. As for the annual review of relations with the bank, the process requires administrative verification work that can take up to several months.
Blockchain technology can help to streamline these exchanges, as well as auditing. This is what the Wecan Comply blockchain platform offers, by pooling resources and standardizing the information exchanged between financial players. By exchanging data ultra-securely and in real time, data quality is improved, and the reduction in operational work leads to a significant reduction in operating costs. Technological innovation is an opportunity for independent asset managers and custodian banks alike to devote more time to their business priorities through value-added products and services for their clients, rather than regulatory requirements.
Tomorrow's compliance...
Today, financial institutions are attempting to automate controls and monitoring in the areas of KYC/AML, trade monitoring, reconciliations and more. Some institutions have begun to integrate blockchain into this automation, notably through the fluidification of exchanges between banks and independent asset managers enabled by pioneering solutions such as Wecan Comply. And this is just the beginning of compliance on blockchain. Tomorrow, regulators will be looking for direct access to these tools, either on an ongoing basis or during supervisory checks, according to the PwC report "Financial Services Technology 2020 and Beyond: Embracing disruption". The possibilities offered by technology are numerous, and tomorrow auditing could be automated and platforms connected to official registers, replacing PDFs with certified information.
As a result, it's vital that companies make data and compliance controls a priority today. It's short-sighted to focus solely on compliance with current regulations. Companies need to start thinking in this way now, so that they have a better understanding of where their data and associated controls reside. By doing so, they will improve their credibility with regulators today, and be ready for the future.
