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New technology to help safeguard banks

Wednesday, May 3 2017

THE Economic Commission for Latin America and the Caribbean’s (ECLAC) subregional headquarters in the Caribbean has declared that blockchain technology, a recent development in the field of financial technology, could be a possible solution to some of the problems surrounding de-risking and the navigation of correspondent banking relationships.

An ECLAC report says that while there are still a number of issues to be resolved with the new technology, it could allow Caribbean banks to bypass correspondent banks altogether, in the process reducing transaction costs and increasing efficiency.

De-risking is a term used to describe the practice whereby correspondent banks, large international banking institutions which provide banking services to smaller financial institutions, sever ties with financial institutions.

This happens in cases where they consider the risk of non-compliance with regulations intended to prevent money laundering and financing of terrorism to be too high compared to the returns. De-risking is affecting small and developing economies around the world but the small economies in the Caribbean have been among the ones hardest hit.

According to the report, a blockchain is the implementation of cryptographic technology which enables data to be shared across a network of computers controlled by multiple organisations and individuals.

Cryptography is a method of storing and transmitting data in a secure form so only those for whom the information is intended can receive, read and process it. In its latest report, ECLAC says this new technology may offer an alternative means for financial service institutions to support cross-border transactions.

The report says the technology seems to have the potential to address the problem of de-risking by using an appropriately designed blockchain-based settlement network to offer tools to improve surveillance of transactions, which would enable the detection of illicit financial transfers and thereby decrease risk and associated compliance costs.



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