Banks should have safeguards vs risks from use of blockchain

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The Bangko Sentral ng Pilipinas (BSP) supports banks’ use of blockchain technology to make processes more efficient, but said there should be safeguards against risks like money laundering.

“We support that because it will make services more efficient, less costly, and it will broaden the reach of financial services. In fact, I know it (blockchain technology) has been adopted by some rural banks,” BSP Governor Benjamin E. Diokno said at a virtual forum organized by the Philippine Economic Society on Thursday.

“But we have to make sure that it does not become a tool for concerns like money laundering, for example. We have to balance, but we welcome any innovation that will make the system more efficient, less costly, and more sustainable,” he added.

Mr. Diokno said the BSP wants to enable industry players to pursue innovative products without compromising financial stability, cybersecurity, data integrity and consumer protection.

“By balancing innovation openness with the pursuit of safeguarding consumer protection, cybersecurity and financial stability, the BSP aims to develop the public’s trust in the financial system, thereby promoting financial inclusion, narrowing the social and economic gaps among Filipinos, and paving the way for an inclusive economic recovery,” he said.

He noted the central bank’s sandbox or test-and-learn approach allows prudential assessment of innovative financial products prior to actual deployment or live production.

Blockchain makes use of fully digital and decentralized ledgers to record transactions. This distributed ledger also serves as the platform where virtual currencies are transacted.

The storage units used in blockchain are continuously updated and secured using cryptography, making data management and other data-driven processes decentralized, tamper-proof and more transparent.

Use cases in the financial industry that involve blockchain technology include fraud reduction, Know-Your-Customer processes, trading platforms, and even payments.

Among local lenders that have tapped blockchain is UnionBank of the Philippines, Inc., which launched a cross-border remittance service for local rural banks using the technology in 2019.

The Aboitiz-led lender’s upcoming innovation campus in Laguna will also house, among others, an institute that will focus on blockchain. — LWTN