It has been a while now since cryptocurrencies and blockchain have been defined as transformative for finance and many more industries. Still, even after so many years since Bitcoin’s birth, regulation concerning the space remains unclear, and compliance isn’t taken for granted yet
Blockchain enables banks and corporations to make cross-border money transfers which provide real-time settlement and reduce costs by optimizing liquidity and eliminating reconciliation. Distributed ledger technology also allows for convenient regulatory oversight because the entire ledger is recorded and immutable. This means a company may be audited via their blockchain ledger. The ledger could potentially display a granular view of each event in some cashflow, as well as the net amount of cash and cash equivalents transferred into and out of that company for some set time period. The blockchain’s time-stamped entries would provide a record of how and when companies made or received payments.
Insurance – P & C Claims Processing
Blockchain technology can automate claims processing through smart contracts and securely facilitate claims management for property and casualty (P&C) insurers. Enterprise Ethereum smart contracts can improve assessment of insurance claims by providing historical information which also reduces the potential for fraudulent claims.
Financial institutions are utilizing blockchain to automate syndicate formation, underwriting, and the disbursement of funds (e.g. principal and interest payments). Enterprise blockchain solutions can also reduce loan issuance time and operational risks.
In trade finance networks, blockchain solutions are helping business entities digitally store KYC details and facilitate the real-time verification of financial documents, creating new, more efficient financing structures. Faster settlement times enabled by blockchain also greatly reduce counterparty risk.
In the future, the preparation of annual financial statements, such as the balance sheet, statement of cash flows, or income statement will be conducted in real time with the potential for real-time audits. This enables multiple breakthroughs in compliance and regulatory oversight.
This will enable tax collection to be faster and more accurate, which improves efficiency and reduces costs. Blockchain reports will include information on the financial position of a company which could be promptly released to issuers and investors. Automated compliance will reduce friction, reporting costs, and eliminate errors associated with manual audit activities.
Additionally, blockchain compliance will increase corporate governance as it would allow information to be available in real time to board members and easily distributed to the proper stakeholders in a decentralized manner.
ConsenSys companies, such as Truset and Drum G are enabling information to reach investors without delays errors or intermediaries. Ultimately, regulators could also access important financial information on a real-time basis to ensure that any risks to the financial markets are detected faster and in a proactive manner.
Rehypothecation is the process by which banks and financial institutions leverage assets that have been posted as collateral by their clients. In return for lending their assets to the bank, clients receive rebates on fees or lower borrowing costs. Enterprise blockchain solutions can track and manage asset rehypothecation. Ethereum smart contracts also enable the real-time enforcement of regulatory control limits and reduce settlement time.
Custody and Proxy Voting
Custody and proxy statements can be distributed via blockchain technology. Ethereum blockchain solutions enable counting votes via smart contracts which improve retail investor participation. Blockchain implementations can also automate the validation of votes and enable personalized analysis.
Enterprise Ethereum will also enable the issuer/company and the board of directors to have a clear understanding of how the shareholders are voting for each resolution. This is currently a grey area where there is little transparency about the actual concerns of shareholders. Often this process relies on a paper-based process which makes running annual general meetings expensive and complex. Blockchain will ensure that general yearly meetings can be run remotely rather than in person.
During the post-trading process, buyers and sellers compare trade details, approve the transaction, and change records of ownership. Blockchain and smart contracts have the potential to facilitate post-trade activities which can streamline processes and potentially reduce settlement times. Additionally, blockchain-enabled post-trade helps reduce counterparty and operational risk.