From Zero to Hero – How Blockchain could bring the FCA’s Consumer Duty to life

The reputation of blockchain has taken a severe beating in recent years. The spectacular collapse of FTX, plus how regulators are turning against crypto currency businesses built on blockchain technology seems to be toxifying the technology for traditional financial services businesses.  

However, running away from using blockchain because of the crisis in cryptocurrency would be a serious mistake for the banking industry. In fact, there is a case that the technology could help to build customer trust and enable regulatory compliance rather than attract regulatory censure.  

Regulators are increasingly keen to root our examples of tick box compliance that allow firms off the hook when customers are let down by poor service and products. A recent example of this is the FCA’s Consumer Duty in the UK, which requires that firms do much more to ensure customers understand and acknowledge they have understood the terms of the financial products they have bought.  

So how to ensure this happens?  

What the FCA regulation requires is a durable medium or documentation that cannot be altered. There have been a range of answers for achieving this from sending PDFs, HTML emails or directing customers to portals. None of these are perfect and don’t fulfil what the Consumer Duty regulations are calling for, which is evidence the industry is ensuring greater consumer understanding and engagement.  

This is where the some times maligned blockchain technology can step in. Distributed Ledger Technology (DLT) can provide a real-time audit trail so all records can be tracked. It also ensures document security by using cryptography that only allows access to authorised users, and securely stores all data.  

What’s exciting is that this very practical application of blockchain technology isn’t on the drawing board. For example, a UK regtech called docStribute has a solution on the market today. Their offering combines DLT with immutable hyperlinks and monitoring tools to keep track of how a firm is communicating details about its products with individual customers.  

Consumer Duty requires systematic changes in how financial services firms communicate and engage with their customers. To achieve its objectives there should be a real shakedown in how those firms use technology to comply with this new set of regulations. While you can see the irony in this, it is fitting that blockchain technology could be playing a pivotal and positive role in ensuring Consumer Duty is a success for customers and the industry as a whole.