Despite strict policies, there are still instances of regulatory oversight in the financial services sector. Due to numerous new regulations requiring more data to be disclosed in a shorter amount of time, the financial services sector is also under pressure. Before the date of enforcement, when compliance is enforced, and penalties for non-compliance are applied, businesses must become familiar with the requirements of each new piece of law and create a compliance solution. Financial firms find it challenging to navigate regulation because new and updated rules are frequently on the legislative agenda. Due to their extensive global reach and range of product offerings, many financial institutions may need to comply with over 400 regulatory and rulemaking bodies. As a result, it is difficult for many financial institutions to satisfy the increasing demands of numerous authorities in various countries.

Legislation usually incorporates requirements that dramatically change from the draught stage to final rulemaking and the sheer volume of incoming financial policy. This causes businesses to put off making crucial decisions about how to implement compliance solutions. Since revision stages and replies to consultation papers induce revisions to meet industry concerns, the proposed draught and the final regulation may differ significantly. As enactment day draws near, financial institutions rush to meet the last-minute requirements. Companies that are short on time frequently turn to temporary fixes. A new regulatory regime may require a multitude of interim solutions since interim solutions may only be able to satisfy the requirements of one incoming rule. Such solutions are typically pricey, and a complex web of integration results from adding new systems on top of already-existing ones. Although solutions are installed to increase automation in the compliance process, considerable manual reconciliation effort is still required.

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Building effective data integration for all enterprise systems, let alone a compliance system. Current compliance systems demand time-consuming data management procedures to guarantee that all data is accurate and accounted for. Since new regulations frequently require more reporting information, compliance systems find it challenging to adjust immediately. A compliance software solution must attempt a firm-wide integration of diverse, independent data streams to record and aggregate reporting metrics completely. Multiple asset classes worth of data from various trading systems and warehouses must be combined, vetted, re-formatted, internally stored, and reported in the format required by regulatory authorities for each transaction. The difficulty of data consolidation then makes up a considerable chunk of compliance work.

Also Read: The Foundational Components Of The Blockchain Ecosystem

How Blockchain Can Be Proven To Be A Successful Fix

Blockchain technology is a new solution to compliance issues, enabling counterparties to efficiently and precisely record immutable states. Immutable state transfers between participants are one of the fundamental capabilities of the blockchain. Data must transit through numerous internal and external systems and checkpoints during any transaction to ensure accuracy. Additionally, the blockchain design enables each party to see the full details of their transactions. This is because consensus procedures need that all parties sign ledger entries digitally before they can be acknowledged and certified. Every transaction a business engages in or gains access to is recorded in vaults. All transactions must go via the individual nodes of the counterparties, and each node’s vault database stores the final state of each transaction.

The fundamental characteristics of blockchain topologies can offer a complete regulatory reporting solution. A blockchain also makes it simple to report data to authorities. Contrary to massive data stores, a state’s pertinent data can be consolidated without needing to be transformed into other formats or transported repeatedly. All parties may be sure that a transaction’s information is accurate and will stay that way forever once it has been confirmed and saved in the vault. There is no need for reconciliation procedures. A blockchain compliance solution addresses multiple regulations. The solution’s architectural design makes it simple to adapt to new laws. New regulatory reporting requirements need only be added to the list of data pulled from the vault because the reporting data is consolidated inside of a locker. The information can then be retrieved from the vault using a comprehensive source for regulatory reporting needs.

Managing Compliance-Related Issues

Existing firms’ fragmented compliance systems can only accommodate new rules by adding more layers of services and software to an already clumsy, monolithic system. The internal systems that are now in place are ineffective and lacking, which causes more data silos and concerns about the integrity of the information.

A blockchain system might be able to solve many of the present problems with regulatory compliance. Such data are accurate and immutable. Hence manual reconciliation procedures are unnecessary. Thanks to blockchain’s built-in data integration capabilities, future regulatory and reporting obligations can be met through an adjustable mechanism. Third-party service providers may become outdated.

It seems doubtful that a blockchain will be implemented purely for regulatory reporting because of the resistance to changing current methods. On the other hand, a blockchain solution for regulatory reporting makes a case for using the technology stronger. Large financial institutions will probably need other synergies from capital market assets put on a blockchain to adopt blockchain fully.