How Are UK Banks Dealing with Blockchain Adoption and Regulations?
Over the past decade, the banking and financial sector has changed dramatically. New technologies have revolutionised both currency and transactions. The introduction of Bitcoin and other cryptocurrencies has also led to the introduction of blockchain technology. The very definition of blockchain can be confusing, but it offers a lot of advantages within the financial sector.
Here, we’ll look at how banks are dealing with the adoption of blockchain and regulations.
Understanding blockchain technology
When you look up the definition of the technology, you’ll find it states:
“Blockchain is a distributed, decentralised, public ledger”
To the average person, this doesn’t really make a lot of sense. However, it’s a lot simpler than you might think. Block chain is simply a chain of blocks. The blocks are basically pieces of information, and the chain is the public database they’re stored in.
The blocks of information can store anything from information relating to transactions themselves, to information regarding the user behind the transaction. When a transaction is made, it will be verified by a network of computers. After verification, the information regarding the transaction gets stored in a block. This block is provided with a hash which is an identifying code. After it has this, it is added to the blockchain.
How has blockchain changed the banking sector?
Blockchain technology can be used in a variety of ways within the UK banking sector. These include:
- Clearing and settlement
- Trade financing
- Syndicate lending
Although payments have become much faster and more secure, blockchain technology can further speed up and simplify the process. It would enable banks to be able to communicate with one another, as well as make payments via a database that is easily shared. It would eliminate the need for intermediaries, reduce costs and speed up payments.
All banks need to confirm transaction identity, especially in terms of potential money laundering and know your client legislation. However, at the moment this has to be done manually and it can be a very tedious and complex task. Blockchain technology adds transparency to transactions, reducing the need for independent procedures.
These are just some of the benefits blockchain technology can deliver to UK banks. However, there are some challenges banks face when it comes to implementing the technology.
What challenges do banks face incorporating blockchain technology?
Despite the advantages blockchain technology can deliver to the banking sector, there’s a lot of challenges they face to implement it.
The governance and regulation of blockchain technology can be a particular issue. This is because it varies between countries. UK banks are bound by GDPR, plus there’s other legal issues they need to consider. Therefore, seeking advice from experts such as Withers would be required. There are also the costs to be considered, along with a lack of knowledge regarding the technology.
Overall, blockchain technology has the power to revolutionise the UK banking sector. However, they need to be able to overcome the initial challenges the technology presents. The above are just some of the ways blockchain technology can benefit the sector.