Study Overview
The global financial system remains fragmented by jurisdictional boundaries, with institutions repeatedly performing identical compliance checks on the same entities across different markets. This redundancy creates significant friction in cross-border financial flows, with estimates suggesting compliance costs account for a non-trivial portion of financial institutions' operating expenses. Blockchain technology offers a potential solution through portable, programmable compliance - where regulatory checks, once performed and cryptographically verified, could be re-used and “trusted’’ across jurisdictions. However, this vision of “verify once, use many times”' faces substantial regulatory skepticism due to concerns about systemic risk, data privacy, and national sovereignty. The tradeoff between efficiency and risk is particularly acute since policymakers often hesitate to support blockchain innovation, despite its potential efficiency gains, due to concerns about sanctions enforcement and illicit activities. Therefore, empirically examining the economic trade-offs that automated compliance systems generate will provide policymakers with an evidence-based approach to modernizing regulatory frameworks while maintaining robust security standards.Our study seeks to examine automated compliance systems by analyzing the recent initiatives that central banks and financial institutions have promoted, as they provide a unique laboratory for answering these questions. By examining the staggered adoption of automated compliance systems or initiatives aimed at such automation, we can assess portable compliance infrastructure's promised benefits and potential risks. Specifically, we ask three questions: (1) Does automated compliance technology increase financial inclusion through reduced costs and improved access? (2) Do early adopters of compliance initiatives gain competitive advantages that create barriers to entry? (3) How do different jurisdictions' approaches to automated compliance influence local business development?
Study Results
Pending
Research Partner: Emory University
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)