Blockchain, Regulatory Compliance
An astronomical increase in regulation has left the financial markets in a huge uncertain operational fields. Compliance teams are overloaded with work, while struggling to meet the constant increase of the regulatory demands. That’s why they see Blockchain technology as the best ally for regulatory agencies due to the transparency and traceability that brings into the table. Even Though many people in the space see the regulatory agencies as the enemy, regulatory agencies and blockchain are a fantastical match.
Blockchain promises to disrupt the way companies deal with compliance requisites, allowing them to have the speed and flexibility needed to stay alive in the new global digital era. Thank to the use of blockchain technology we can create an environment where market players and regulators have access to a trustable and audiatable dataset. An access to such thing, would allow firms to get rid of all compliance duties and risks, as the regulator would have full access to all the data, instead of having to wait for the firms to send it.
There are three main areas in which blockchain technology will impact mostly the regulatory compliance industry: reduction of fraud, knowing your customer rules, and auditability.
Reduction of fraud: New banks created on top a blockchain or distributed ledger, will allow to prevent false information to be replicated as the records held in a blockchain are encrypted and verified every time a transactions occurs. If someone tries to alter such records, the rest of the network participants will find out what type of data is trying to be changed.
KYC: Know Your Customer procedures have become one of the most painful areas to Financial Institutions have to comply with. In order to comply with all the existing regulations, banks have to spend absurd amounts of money. Thank to blockchain and the developing of new compliance platforms on top of these networks, banks will be able to reduce huge operational costs while increasing their efficiency to comply with the existing regulations. It will also help to build a healthier relationship between the institutions and the regulators as they would be working together instead of against each other.
Auditability: Blockchain or DLT technology will also help the reduction of fraud by giving the network participants the chance to trace where the money comes from, where it goes and who has is the real owner of the funds. The digital token will erase the actual paper document solutions. The process will be transparent, secure and immutable, which will allow to create and audit log of someones historic to check the authenticity of each one of them. All of these characteristics of trading between peers using blockchain or DLT technology will give a new level of trust between network participants that has not been seen before.
Little by little we are seeing how the regulatory agencies are getting involved in the development of this new decentralized world. Many people foresee a future where the code deployed in a blockchain is the actual rule of law. While we are far away from such world, step by step we are getting closer to a rule of law much more transparent, efficient and autonomous that the existing one.
That is why recently, formed an alliance on top of the R3 alliance to create a program to train lawyers for the future that is upon us.
From our point of view, these are the companies that stand out the most in this market segment:
Libra
Libra is a universal control, compliance, and reporting solution for distributed ledger technology. It allows companies to use the latest software for monitoring, auditing, reporting, and compliance capabilities. Libra Enterprise is also a protocol agnostic and connects to any external data source, which means the platform serves as an aggregator housing entirely new and valuable datasets.
Blockverify
Blockverify wants to have a global, positive social impact by using blockchain technology to “make the world more honest and authentic”. Its technology provides a distributed ledger solution, which allows companies to prove exactly where their products are in the supply chain at any given time, and for businesses and end consumers to trace the source, establish authenticity and prove ownership of their purchases. They provide a blockchain solution for anti-counterfeit goods.
Elliptic
Elliptic aims to help authorities to fight crimes by tracing those transactions made by users who wish to buy illegal products or services. Elliptic tracks transactions across hundreds of entities to connect Bitcoin addresses with real world actos.
Their proprietary database links millions of Bitcoin address to thousands of clear web and dark web entities, delivering actionable evidence in cases involving international arms trafficking, money laundering, theft or drug offences for example. Elliptic monitoring capabilities will help law enforcers to catch those actors that put a bad reputation on this decentralized networks by profiting from the pseudo anonymous nature of them.
Coinfirm
It focuses on managing risk and compliance. Coinfirm AML/CTF platforms increases efficiency and receives structured data in the form of reports with compliance conclusions so business can monitor and protect wallets, get notifications on suspicious wallet activities, as well as risk ratings regarding the transactions the business has conducted. Thank to the use of APIs, users can connect to Coinfirms platform that will integrate them with almost any blockchain network, providing them with automated AML assessments on the network transactions.
Auditchain
It’s the world’s first decentralized continuous audit and real time reporting ecosystem for enterprise and token statistics disclosure enabling enterprises to provide stakeholders and regulators with the highest levels of audit assurance. Auditchain uses their compliant smart contract platform to provide in real time data such as a company’s balance sheet, income statement, cash flow or equity reports. Their goal is to make the cryptocurrency space much more transparent and compliant with existing financial regulations.
Crystal
Recently announced the Bitfury group, Crystal is a tool to provide a comprehensive view of the Bitcoin Blockchain and uses advanced analytics and data scraping to map suspicious transactions and related entities and also offers a proprietary risk scoring system to assist investigators in revealing and tracking malicious behavior. With this tool, Crystal aims to become the number one solution for regulatory agencies and entities interested into tracing the malleability of funds or assets across multiple blockchain networks.
Even though Smart Contracts brings the chance of changing many aspects, most of the changes are still far ahead from today. Smart Contracts still need many hours of development to improve the security and other aspects.
Once the security issues are more or less controlled and it’s very hard to find a vulnerability on well-written code, smart contracts will be more and more adopted. Its then, when we will see a different way of interacting with one another since we know that the contract we establish is we agree on.
By law, we mean that it will execute no matter what, no third party can deny it or alter the contents of such contract, and people will not need to trust each other to establish contractual agreements since the contract is all the trust they need.
