How can DLT be used in the process of compliance testing/monitoring and creating related documentation (such as quarterly compliance certifications from advisory firm employees or sub-advisers)?

Distributed Ledge Technology, or DLT can have many benefits over any sort of centralized recordkeeping system, due to the immutability of data.  While most think of the benefits in the financial world related to digital currency trading and streamlining payments processes, as well as more efficient investment trading, settling and recording, there are actually many other uses for the DLT technology within financial services.  Uses to better record, control, oversee and audit processes is one of the many DLT benefits, although it is likely the current open and anonymous DLT network will likely give way to permissioned models connecting a limited population such as banks or broker-dealers/clearinghouses.  Some uses:

  • DLT may have a use in maintaining a virtual record of a potential clients’ digital identity, providing a single course of authentication for compliance oversight on AML, KYC or validation of accredited investor status.
  • Recording any sort of transfer of assets, including real estate, vehicles and assets with any sort of special provenance (such as certified antiques, artwork, etc.)
  • Once securities settlement processes are built into a DLT, firms could track the trading of employees by identifying their accounts on the ledger, and could match activity to that of the firm. You could even build in controls to not allow an employee to trade at the same time a security that a firm is trading.  This would make it much easier to monitor employee accounts that were held at other institutions that were also on the DLT.
  • DLT could be used to keep track of required regulatory steps and automate regulatory reporting and auditing.
  • Smart Contracts built on DLT technology. They are self-executing agreements between parties, which track external data and events, according to rules in the contract and can automatically execute when all contract terms are met.