How Companies Can Lay Groundwork For Better Blockchain Compliance

How Companies Can Lay Groundwork For Better Blockchain Compliance

What was once just a buzzword, used to define the workings of cryptocurrencies, has now taken a central stage. At the core of it, blockchain is a decentralised virtual ledger with the ability to record and verify digital transactions. The decentralised nature of blockchain ensures that the data stored cannot be tampered with as every node has a copy of the virtual ledger. To change an entry on the blockchain one has to alter all the subsequent transactions on all the nodes. This eliminates the need for verification and reconciliation of data.

Blockchain startups have raised $25.2 billion in 2021, a 713 percent YoY growth. According to Gartner, the technology is set to generate $3.1 trillion in new business value by the end of the decade. A recent global survey has found that 84 percent of organisations have some involvement with blockchain technology. This disruptive technology has the potential to power India towards a cashless, paperless, and presence-less compliance.

India’s entrepreneurs deal with an ecosystem of 1,536 acts and rules with 69,233 compliances embedded in them. The regulatory environment is fluid and changes over 4,000 times in a year.

ALSO READ: Why India Needs A ‘Green’ Blockchain And What Needs To Be Done To Facilitate It

These changes affect employer compliance obligations in many ways leading to changes in dates, procedures, forms, penalties, duties, and interests among others. The changes are published on some of the 2,233 different regulatory websites at the Union, State, and Municipal levels via notifications, government orders, gazettes, circulars, and OMs (official memorandums).

Employers are expected to read the base Act along with hundreds of relevant amendments published over many years through different documents not available in any consolidated repository. As a result, establishing the regulatory obligations of an enterprise is not easy.

Storing all the regulatory documents on a public blockchain will create a chronological, centralised, verified, and official source that can be accessed by everyone for establishing their compliance obligations. In the future, all the bills including various drafts, public commentary, feedback, multiple versions, final act, relevant rules, and all subsequent amendments should be available for easy access and consumption on the blockchain.

India’s 63 million enterprises translate into only 1 million formal enterprises. The perceived formalisation tax in terms of high regulatory compliance obligations has incentivised Indian entrepreneurs to stay small and informal. India’s growth will need to be powered by a simplified and digitised compliance ecosystem.
Based on some recent estimates, India’s digital economy is expected to swell to a trillion dollars shortly. While the country has laid a strong foundation for a digital future, regulatory capacity will soon become a binding constraint to economic growth.

ALSO READ: 5G + Blockchain: What This Combination Means For The World Of Finance

A cash-less, paper-less, and presence-less compliance will hold the key. The migration from physical to digital will be non-trivial. It will require a strong foundation of reliable, verifiable, and tamper-proof management of regulatory documentation. The date, time, ownership, and content of critical regulatory documentation need to become immutable.

Blockchain technology offers a logical solution to establish the integrity of digital documents. India’s 21st-century compliance will have all licenses, registrations, permissions, consent orders, returns, registers, challans, payments, and notices maintained and exchanged digitally against a Unique Enterprise Number (UEN).

These documents can be maintained on a blockchain ledger establishing authenticity and leading to trust between parties. Currently, if an entrepreneur wants to set up a new factory in any state, at least 5,000 sheets of mandatory documentation are printed and submitted. This documentation needs to be self-attested, notarised, and stamped based on the regulatory requirements, primarily to establish authenticity. This process is grossly inefficient and environmentally expensive.

A digital ledger that holds all the government approvals can make the data highly available, transparent, immediate, and secure. In addition, it will obviate the need to use physical paper as a medium of communication.

In addition, these documents will be available to the relevant regulatory authorities to facilitate renewals, reviews, and inspections, making enforcement faster, more efficient, and hassle-free. Regulatory agencies can maintain near-real-time access to secure compliance-related data. This would allow regulators to stay ahead of the game, as opposed to analyzing information post facto.

An effective application of Blockchain technology can drastically reduce the time, cost, and effort spent on regulatory reporting while also improving the quality, accuracy, and confidence in the process. Such a system will improve data visibility and an immutable audit trail for all compliance actions.

Each ledger entry on the blockchain will contain details on who made the change, the time and date the change was made, and the contents of the change. The digital signature will help ensure that the author of the transaction is in fact the person who holds the private key. The regulatory office or the compliance officer of the company can easily establish the authenticity and integrity of the data at the time of retrieval. Any data corruption can be instantly identified and corrected.

Corporate India needs to start making investments in private blockchains, for within and between organisations. They should invest in building technical infrastructure for establishing and managing multiple blockchain networks with necessary access control.

With the digital shift, creating and collaborating digital compliance documents among regulators and entrepreneurs will lay the foundation for a National Open Compliance Grid.

(The author is the CEO and co-founder of TeamLease RegTech, a compliance management software firm.)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.