Blockchain Networks & the Law
Blockchain Networks & the Law
Blockchain will NOT achieve mainstream adoption unless the Banking, Financial Services & Insurance (BFSI) sector adopts it. And that won't happen without 100% regulatory compliance.
1. The background
Blockchain technology has been around since 2009 and during this time it has gained immense popularity and generated a lot of hype.
Some people believe blockchain is the future of finance & commerce, while others believe it is just a fad that will fade away.
No matter which side of the fence you are on, there’s is one thing that everyone can agree on - blockchain technology will not be able to achieve mainstream adoption unless the Banking, Financial Services & Insurance (BFSI) adopts it.
BFSI is the backbone of the global financial system and this sector will NOT adopt blockchain unless 100% regulatory compliance is ensured.
2. Regulatory Compliance issues
If BFSI is to use blockchain technology, then at a minimum, networks have to comply with these laws:
KYC (Know Your Customer)
AML (Anti-Money Laundering)
CFT (Countering the Financing of Terrorism)
Freezing of assets
Consumer protection
Right-to-be-forgotten Regulations
Data Privacy
Let’s look at these in some detail.
2.1 Know Your Customer (KYC)
KYC verifies the identity of customers to prevent activities like money laundering & terrorist financing.
KYC involves collecting & verifying personal information such as name, address, date of birth, and identification documents.
In the context of blockchain networks, KYC applies to:
entities operating nodes
each and every address
entities creating assets
2.2 Anti-Money Laundering (AML)
Money laundering is the process of concealing the origins of illegally obtained money by putting it through a complex sequence of transactions, making it difficult to trace its source. AML laws have been enacted to prevent criminals from using the financial system for money laundering.
AML compliance involves customer identification & verification, risk assessment, and monitoring & reporting of suspicious transactions.
2.3 Countering the Financing of Terrorism (CFT)
CFT detects & prevents the transfer of assets to terrorists & terrorist organizations. CFT involves customer due diligence, transaction monitoring & suspicious activity reporting.
2.4 Freezing of assets
Freezing of assets involves restricting access to assets held in a particular account or wallet on the blockchain. This is done to comply with regulatory requirements, prevent fraud, or respond to suspicious activity.
2.5 Consumer protection
Consumer protection, in the context of blockchain, ensures the security & privacy of user data. It also prevents fraudulent or unauthorized access to user assets.
2.6 Right-to-be-forgotten Regulations
The "Right-to-be-forgotten" regulations give individuals the right to request the removal of personal data from online platforms.
2.7 Data Privacy
Data privacy is the protection of personal information or data of individuals from unauthorized access, use, disclosure, or destruction. It involves the collection, storage, & management of personal data by organizations, businesses & governments in a responsible and lawful manner while respecting the rights and privacy of individuals.
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