BLOCKCHAIN TECHNOLOGY: A SOLUTION AGAINST DE-RISKING PRACTICES

TEXT BY HELEN GRIFFITH

De-risking is a common practice in the banking industry whereby financial institutions sometimes opt to sever business relationships from certain companies due to the high cost of regulatory compliance and the comparatively low returns. Developing countries are often hardest hit by these practices.

Earlier this year, the Economic Commission for Latin America and the Caribbean, (ECLAC), published a report indicating that blockchain technology may offer a solution to this problem. This technology offers cryptographic measures that allow data to be safely shared across a large international network of servers and controlled by a vast number of international organizations. Because of its multiplicity, this system becomes decentralized and all records of transactions are digitally recorded across myriads of computers, making it impossible for records to be changed without subsequent blocks from other computers. Bitcoin is perhaps one of the most widely recognized forms of blockchain technology.

As such, a well-designed blockchain network could provide an adequate amount of transparency and enable the surveillance of all banking transactions to identify those that are fraudulent. Caribbean banks particularly stand to benefit from this technology because they would no longer be required to utilize correspondent banks, thereby reducing their transaction times and costs.

While this technology is still in its budding phase, and many issues such as privacy and international compliance regulations still need to be addressed, the report concludes that this could be a promising solution to the problem of de-risking practices.