How companies can lay the foundation for better blockchain compliance

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

Blockchain startups have raised $25.2 billion in 2021, a 713 percent year-over-year 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 organizations have some involvement with blockchain technology. This disruptive technology has the potential to propel India towards cashless, paperless and presenceless compliance.

India’s entrepreneurs deal with an ecosystem of 1,536 laws and regulations with 69,233 compliances built into them. The regulatory environment is fluid and changes over 4,000 times during a year.

ALSO READ: Why India needs a ‘green’ blockchain and what needs to be done to facilitate it

These changes affect employers’ compliance obligations in many ways, leading to changes in, among other things, dates, procedures, forms, penalties, duties and interests. The changes have been published on some of the 2,233 different regulatory websites at the Union, State and Municipal levels via notifications, public orders, gazettes, circulars and OMs (Official Notes).

Employers are expected to read the Constitution along with hundreds of relevant amendments published over many years through various documents that are not available in any consolidated archive. As a result, it is not easy to establish the regulatory obligations of an enterprise.

Storing all the regulatory documents on a public blockchain will create a chronological, centralized, verified and official source that can be accessed by anyone to establish their compliance obligations. In the future, all bills, including various drafts, public comments, 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 toll of formalization in the form of high regulatory compliance obligations has encouraged Indian entrepreneurs to stay small and informal. India’s growth must be fueled by a simplified and digitized compliance ecosystem.
Based on some recent estimates, India’s digital economy is expected to swell to one trillion dollars shortly. While the country has laid a strong foundation for a digital future, regulatory capacity will soon become a binding constraint on economic growth.

READ ALSO: 5G + Blockchain: What this combination means for the financial world

A cashless, paperless and presenceless compliance will hold the key. The migration from physical to digital will be non-trivial. It will require a strong foundation for reliable, verifiable and tamper-proof management of regulatory documentation. The date, time, ownership and content of critical regulatory documentation must become immutable.

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

These documents can be maintained on a blockchain ledger which establishes authenticity and leads to trust between the parties. Currently, if an entrepreneur wants to set up a new factory in any state, at least 5,000 sheets of mandatory documentation are written and submitted. This documentation must be self-attested, certified and stamped based on regulatory requirements, primarily to establish authenticity. This process is very inefficient and environmentally costly.

A digital ledger containing all government approvals can make the data highly accessible, transparent, immediate and secure. In addition, it will avoid the need to use physical paper as a communication medium.

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 will 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 improving the quality, accuracy and trust of the process. Such a system would improve data visibility and an immutable audit trail for all compliance actions.

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

Corporate India needs to start investing in private blockchains, for within and between organizations. They should invest in building technical infrastructure to establish and manage multiple blockchain networks with the necessary access control.

With the digital shift, creating and collaborating on digital compliance documents among regulators and entrepreneurs will lay the foundation for a national open compliance network.

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

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 very risky. There can be no regulatory recourse for losses from such transactions. Cryptocurrency is not legal tender and is subject to market risk. Readers are advised to seek expert advice and read the offer document(s) together with related important literature on the subject carefully before making any investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the readers own cost and risk.