Understanding the regulation around KYC and blockchain

Blockchain technology is in its budding stages. The BFSI (Banking, Financial Services, and Insurance) sector has started to explore the technology’s potential. Although, there still is a long way to go for organizations to put this technology into practice.

The reasons behind this are because regulations around the technology and its use cases are in the development stage. However, the Government and Central authorities have been contemplating regulations around both KYC and blockchain, till now.

Regulations revolving around blockchain

As you might be aware, KYC is one of the most important aspects of banking, there have been quite a few regulations around the practice. Similarly, blockchain is on its way to becoming inevitable, as organizations are now vying to utilize the technology to garner a competitive edge. This is the primary reason why governments around the globe, besides watching the growth of blockchain technology, want to enforce regulations. Now, this can either go in favour or against the development of technology.

Blockchain- Free Market or Regulation?

Some people view blockchain as not just a tool, but as an interface or utility to either ban or ratify it. Moreover, it is synonymous with the internet. Blockchain is vast and an entity unto itself. The lack of centralized control has been worrying central authorities lately. A lot of people have the perceptions that a lack of centralized control may lead to heavy risks and instability. Although, you cannot ban technology just like the internet.

Blockchain has the potential to serve both financial and non-financial applications, as the use cases extend across several industries and their applications. At the same time, regulations can lead to an adverse effect on FinTech companies that use this technology. Localised regulations are capable of leading to an exit from the geographical locations of the organizations, whereas the general regulations may render the technology unusable.

In the end, financial institutions will benefit from blockchain technology if they eliminate intermediaries. Hence, they will look forward to implementing it.

Will businesses face loss due to stringent KYC norms?

No, because blockchain intends to ease up the KYC process, moreover, the government has also been keen on setting up regulations in place. In addition to that, blockchain has a form of distributed ledger technology that can make the process even more transparent. Although, central authorities are figuring out ways they can implement regulations over the blockchain.

Is it possible that regulations can speed up implementation?

It is possible that implementing regulations can speed up the development of this technology, as governments assess the outcome of using blockchain. The fear regarding it comes from the usage of cryptocurrency such as Bitcoin. Although, that is a very minor challenge, compared to the benefits that blockchain has to offer.

Conclusion

Blockchain technology is the next best thing, it could save up to $20 billion in costs by 2022. This comes as a huge relief to banks, financial institutions, and governments.

Rea Setia is an passionate writer. She loves to share business tips and her experience about industry.