Page 16 - Risk Management Bulletin April-June 2022

RMAI BULLETIN APRIL - JUNE 2022

make its mark in many other industries and in many people and are open to error and interpretation, smart
different ways. contracts rely on data and data alone. The terms and
penalties agreed at the start are clear and accessible
So, what’s to stop the risk and compliance sector to all parties, and the contract is automatically
benefitting, too? enforced, without the need for a middleman. And
because versions of the contract are distributed across
Third-party risk management: the the network, there’s no danger of losing it.
blockchain advantage
For smaller vendors looking to do business with
There’s good reason to believe that blockchain could enterprise companies, blockchain could be a game-
help resolve some of the biggest challenges posed by changer. These firms typically spend thousands of
third-party risk management. Key benefits include data dollars in their quest to meet the exacting compliance
transparency and immutability, real-time access to requirements of the large enterprises they partner
data, as well as enhanced security and improved with. Sometimes the cost and effort mean that they’re
automation of repetitive tasks, ultimately leading to forced to walk away from contracts. The good news is
greater efficiencies. that blockchain could help level the playing field,
allowing smaller players to keep up with the big guys.
With blockchain, compliance teams would have easy Exhaustive questionnaires, which third parties have to
access to up-to-date background information on third complete every year for every enterprise they work
parties. Imagine how much time that would save on with, would be consigned to history, replaced with a
research, making it quicker and easier to shortlist the robust digital ledger. Every time there’s a change or an
right vendor in the first-place. update, say a new security certification earned or new
HR policy introduced, this would be updated in the
Exhaustive, time-consuming risk assessment ledger for everyone on the blockchain to see.
questionnaires would also become a thing of the past.
These documents can be several hundred pages long Blockchain and third-party risk: the
and put a massive strain on resources, arduous for
third parties to complete and organizations to barriers
administer and verify. Instead of completing one-off Clearly blockchain has a lot going for it, but using a
assessments, blockchain would make it possible for nascent technology isn’t going to be problem-free.
organizations to track compliance benchmarks on a
decentralised ledger in real-time. In fact, all the Gartner sees long-term potential in the technology, but
information required for screening an individual or firm in its seven mistakes to avoid in blockchain use, it
could be held on the blockchain – created once and highlights that most blockchain offerings today are too
used many times. immature for large-scale production.

The integrity of the data is another massive plus point. While data security is supposedly one of the key
The fact that the data on the blockchain can’t be benefits of blockchain, the technology isn’t risk-free.
modified or tampered with, either by external parties One of the most recognised security issues are so-
or the vendor themselves, means that compliance called 51 percent attacks, which occur when one, or
professionals can put their trust in it. The data, or several, malicious entities gains majority control of a
digital ledger, could also act as a secure, immutable, blockchain’s nodes. The entity then has the power to
time-stamped audit trail to evidence compliance both prevent valid transactions from taking place as
activities, all saved in a single place. well as reverse transactions that have already
happened on the blockchain.
Also worthy of attention is blockchain’s ability to
execute smart contracts, which promises greater Speed and scalability are also cited as a problem.
transparency and efficiency for third-party Basically, the more people that join the network the
relationships. While traditional contracts are reliant on slower it becomes. And there’s the skills aspect to

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