Blockchain or distributed ledger technology (DLT) could help in protecting financial systems against cyber-terrorism and cyberattacks, IMF Managing Director Christine Lagarde said recently.

Speaking at the FATF Plenary Meeting, Valencia, Lagarde highlighted the role financial technology (or FinTech) can play in combating the financing of terrorism.

“Combating the financing of terrorism increasingly requires harnessing the power of financial technology, or fintech”, she said. “Of course, fintech is a double-edged sword. It can be used to promote and fund terrorism, including through the anonymity of virtual currencies. But it can also be a powerful tool to strengthen our defenses against the financing of terrorism.”

Lagarde explained that fintech could help in identifying the flow of terrorist funds, adding that disruptive technologies such as machine learning and other artificial intelligence (AI) tools can help in identifying patterns of activity that would otherwise be very difficult to detect.

“Fintech can also help protect financial systems against cyber-terrorism. A good example is the “distributed ledger” technology that underpins virtual currencies and other applications. This technology is less vulnerable to a single point of failure and could prove resilient to cyberattacks because the ledger—or record of transactions—exists in multiple copies”, she added.

The International Monetary Fund (IMF) recently released a discussion note focusing on emerging fintech innovation, distributed ledger technology (DLT), and central bank digital currency (CBDC) among others. In the paper, the IMF stated that DLT could spur change in the financial sector. It added:

“DLT, when combined with other technologies, has the potential to significantly lower the cost of compliance. In particular, know-your-customer (KYC) utilities and digital identity can facilitate information sharing and help reduce the cost of compliance, including with respect to AML/CFT regulation and sanctions-related controls.

“DLT could be used to create and maintain registries of standardized customer information, along with their digital identities, which could facilitate access to, and sharing of, customer information. In this case, DLT would be complemented by other technologies such as biometrics and artificial intelligence.”

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