How Blockchain could’ve prevented the PNB Fraud
What happened at Punjab National Bank (PNB) was the result of numerous systemic failures to detect simple human malfeasance. These failures could have been easily spotted and prevented with a fraud mitigation blockchain platform. It’s surprisingly common for the information settlement mechanism like SWIFT (Society for Worldwide Interbank Financial Telecommunications) to be on a separate ledger from the payment settlement mechanism which is the system more likely to be scrutinized by the bank’s internal controls, as well as the various audits, including inspection by regulators.
With a distributed-ledger solution, information such as the Letters of Undertaking (LOUs), receipts, invoices, shipping documents, tax filings, and assessments of client risk and creditworthiness are connected directly to the payments. If a bank uses a distributed-ledger platform that accommodates information settlement, then the payments and all of the associated information are available to all of the participants in the transactions, as well as to the regulators and auditors.
The participants in the transactions on distributed-ledger solutions have real-time access. Any change would trigger a red flag throughout the system, with automated warnings and controls to all parties. In fact, financial institutions from across the world have increased interest on the possibilities of blockchain. Major banks are experimenting with different use cases and regulators are trying to identify its myriad roles in the business landscape. While blockchain is still a new technology, a lot of progress has been made at large in the past one year alone.
In India alone, institutions are working with distributed-ledger platforms to monitor transactions, prevent double financing and tampering, enable efficient credit and risk governance, register land records, among other use cases.