Driven by the growing demand, and expanding landscape, of the regulatory environments, RegTech is constantly moving forward, searching for newer and more efficient ways to operate.

RegTech, at its core, is simply the management of regulatory processes using smart technology. When faced with regulatory challenges and issues, it must be fast, agile, easily integrated, and analyse the conflicts it needs to resolve thoroughly.

RegTech arrangements are usually cloud-based, allowing users to monitor, back up, and secure information remotely, guaranteeing a significant level of control and consistent information management.

Competent RegTech technology can save time on routine tasks, allowing you to invest more resources in more profitable areas of your business.

Using technology to comply with regulatory requirements is nothing new, and over the years, RegTech has become a vital part of the financial services industry.

However, its formidable challenges are the lack of resources, tactical and operational barriers, and difficulties regarding manual processes and increasing costs.

Following the global financial crisis of 07/08, regulators have cracked down on financial institutions more than ever before, and thousands upon thousands of new regulations have been introduced worldwide. In the last decade, it is estimated that over $3000 billion in fines have been paid for regulatory violations.

Whether a financial behemoth like JPMorgan or a smaller institution, the cost of compliance is way too high, and the introduction of blockchain is the solution the finance world needed. 

Blockchains are basically an ever-growing list of records. These records are known as blocks, and they are connected to each other through cryptography. Today blockchain is used in a multitude of areas, most famously as a distributed ledger for cryptocurrencies, mostly for bitcoins.

But financial services are using blockchains as distributed ledgers in banks. This speeds up back-office systems, increases efficiency and reduces cost.

Blockchain is still effectively in its infancy but is growing quickly as its use becomes more and more apparent and develops to suit changing needs. Financial services providers are searching for solutions to aid them in the regulatory environment, where they need to be well-equipped with technology to adapt to new changes.

Today all global financial regulators are showing interest in employing blockchain in the RegTech ecosystem, but they do not have a working knowledge of the technology.

Blockchain is already playing a major role in driving the Regtech revolution, thanks to its multiple benefits – increased transparency, decentralisation, faster and more cost-effective processing through automation and enhanced security through cryptography. As it gathers impetus, it is important not to be left behind.

Blockchain directly addresses the pain points financial industries have to deal with as they deal with issues such as Anti Money Laundering (AML) and Know Your Customer (KYC) regulations.

The RegTech domain enables enhanced security through cryptography and improved record-keeping to support the automation of monitoring, regulatory fund management, due diligence screening, streamlining of checks, and the use of social media and personal biometrics for verification.

Both AML and KYC  have similar operational issues, and the immutable nature of blockchain-based records simplifies both. It allows the processes to be automated, whether it is granting immediate validation of the documents collated for AML reporting or speedy verification of the data collected for KYC obligations.

With this technology, the cost of consistency is greatly decreased, and the requirement for manual checks is reduced by forcing a switch to digital, auditable workflows.

But it doesn’t just stop there. There are several cases where the use of blockchain eases the pain points of financial institutions:

Anti-Money Laundering, Client Onboarding and Fraud Prevention

As we have just stated, AML and KYC regulations are obvious choices for blockchain applications, so let’s look at it a little deeper.

All financial institutions need to collect their own data on potential clients before they can start doing business with them. This data needs to be regularly updated for all clients, and this can become expensive and time-consuming.

Already, in cryptocurrency, AML software has been tailored to many crypto transactions, monitoring activity and allowing for enhanced checks and due diligence when it comes to data.

The identity management crisis is another issue linked here, and blockchain is considered the answer to this. Services are already being provided to cryptocurrency firms to verify identity faster, more cost-effectively based on analytics or biometrics that comply with complex regulations.

Monitoring

The second use case is that of monitoring. This is another obvious application due to one of the biggest strengths of blockchain, its transparency. In the blockchain world itself, this is extremely useful in monitoring transactions in cryptocurrencies, an effective aid against the increased use of virtual currencies in money laundering.

Record Keeping

One of the key problems of big data is that its collection often results in huge masses of unstructured information, which can end up having very little use. Blockchain is being used to tackle this problem at its root. The main objective is to produce useful, fully transparent data and part of a distributed ledger. This ledger will make it accessible for internal use, allow it to be documented for audit purposes and protect it from falling into the wrong hands.

Regulatory Fund Management

A great example of the application of blockchain technology is the tokenization of assets in the fund sector.

Using smart contracts gives an invaluable advantage due to the effects of automation, but, at the same time, it still covers important bases for regulatory reporting, as well as the compliance of the regulatory obligations of a fund in real-time.

About Sekuritance

The Sekuritance RegTech platform provides a single platform for every eGRC need, including end-to-end AML/CTF, CECL, FCPA, vendor management, beneficiary onboarding, investor check, card processing MFA checks, blockchain wallet checks, cyber-risk assessments, and other RegTech or Business Process Management requirements.

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