Can Blockchain Eliminate the Need for Reconciliation?

Capital Markets CIO Outlook | Friday, November 29, 2019

Blockchain technology might be having the potential to redefine capital market firms by eliminating the need for reconciliations.

FREMONT, CA: Reconciliation practices are vital for any capital market firm. Technological advances have made reconciliation easier, but some limitations persist. Rather than looking to overcome these challenges in reconciliation, capital market companies can look to eliminate the need for reconciliation itself. A feasible way to remove the need for reconciliation is by making way for smart contracts. Blockchain possesses the potential to transform capital market operations in a way that will rule out the need for record-matching.    

Depending on the number of parties involved, reconciliation can become complicated and time-taking. Due to the conventional format of sharing information, reconciliation becomes mandatory. Shifting to blockchain-based smart contracts allows parties to stick to rules and defined workflows. Actions are based on the permissions defined by the smart contracts. Thus, there is a sync between participating entities from the workflow perspective. As a result, the process of reconciliation continues in the background, without the need for any dedicated reconciliation solution.    

The concept of sharing a ledger ensures real-time validation of transaction-related information. On top of that, the ledger also acts as an immutable record. For capital market companies, the need for reconciliation is wholly eliminated since trade data is safely circulated without any chances of manipulations.  

Some capital market companies might have apprehensions regarding cybersecurity issues. However, using smart contract does not make trading companies vulnerable to security attacks. Data privacy and confidentiality are intrinsic characteristics of blockchain technology. Thus, blockchain can help capital market firms let go of reconciliation. Simultaneously, companies will be able to ensure security and cost-efficiency while executing business processes.  Overall, blockchain helps solve issues of cost, risk, and reconciliation, allowing hassle-free, minimum latency capital markets trading.      

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