Usually, while carrying out audits, a letter is demanded from bank by auditors to confirm the existence of a bank balance. However, there is a possibility of providing a fudged document.
At the outset, the process looks like a normal back-office tool. Nevertheless, it has a huge impact and is a highly credible use case of blockchain.
For illustration, one of the main problems at the core of the Wirecard failure was supposedly the scarcity of bank letter backing big bank balances, which normally would cause an audit failure.
If such kind of empirical documentation consists of a fingerprint or hash saved on a blockchain along with a digital signature of the bank, there is a possibility of proving that the bank issued document was issued by the financial institution and not tampered in any manner.
The latest solution takes care of entire process ranging from submitting application for bank letters, its endorsement, and release of the letter. The system also resolves another issue i.e. the letter cannot be requested by unauthorized persons other than the auditor. The banks will be able to confirm that the request has come from the auditor and no one else.
For safety reasons, the letter issued by the bank is not stored on the blockchain platform, but only logs the procedure of disbursing the letter. The Industrial and Commercial Bank of China, the world’s largest bank, is also taking part in the running of the platform by offering its ICBC Seal Chain.
In no manner it is CBA’s initial blockchain project. Two years back, it rolled out a trade funding solution for local Letters of Credit and forfeiting.