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How blockchain could make financial markets safer

The importance of operational resilience in the financial industry has never been greater, according to a white paper, published by Finextra in association with IBM.

In light of the growing threat of cyber crime, as well as increasing regulatory pressure and financial shocks such as the recent UK 'Brexit' vote, financial institutions are facing the challenge of achieving robust, flexible, transparent, efficient and cost-effective operations. Furthermore, they also face disruption from new technologies and also have to address the complexity and interconnectedness of today's financial markets.

Increasing operational resilience should be a priority for financial institutions, seeing as companies are increasingly having to deal with the losses and fallout of cyber crime, volatility, compliance burdens or disruptive technologies. A study by IBM shows that 40 per cent of companies in North America have had to carry out disaster recovery plans in the recent past.

Blockchain could increase traceability, transparency

Technology that underpins blockchain could help to meet some of these challenges, such as damage limitation in the event of service disruptions. For example, data systems, including payment systems, based on distributed ledger technology would be more resilient to systematic operational risk, since they would not be dependent on a centralised third party. Having a ledger means there would be multiple copies of data, which would be more resilient to an attack and would also promote transparency and traceability of transactions.

The paper also focuses on how financial institutions can move towards operational resilience, including through industry collaboration, by focusing on annual audits and through an engineering approach.

Click here to read How to get ahead on operational resilience: Strategies for financial institutions.

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