Block chain is rewriting the rules in risk management given the transparency and security added to transactions. Each time a transaction is made, a record of that transaction is noted in a decentralized ledger, making the latter an immutable and publicly readable entry for authorized parties. Thus, fraud and even the alteration of data cannot take place because once entered in a record, these can never be changed.
The biggest use of block chain technology in risk management is smart contracts. A smart contract refers to an automated form of agreement wherein its terms and conditions are incorporated directly into lines of codes. It means that the contracts automatically enforce and remove any scope of error by man while it avoids using third-party intermediaries. The transparency of block chains will guarantee the improvement of audibility as well as regulatory compliance through clear recording of transactions performed by a financial institution.
Moreover, block chain technology enables processes of enabling identity verification and Know Your Customer processes in various ways through which fraud risks associated with identity forgery can be avoided. Financial institutions can limit the maximum KYC procedure without repeating them by storing their customers' information on a distributed ledger.