Would Blockchain Have Blocked Wells Fargo’s Misconduct?

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It’s been over a year since the Wells Fargo banking scandal came to light. Currently, Wells Fargo estimates their employees opened 3.5 million unauthorized accounts. In response, the bank’s leadership continues to be criticized by leading politicians and Wells Fargo has yet to fully recover from the scandal.

There are lingering questions, too, if technology could have helped prevent the opening of fraudulent accounts at the bank. Or do financial institutions need do undergo fundamental cultural change?

On one level, Christian Catalini, a professor at MIT, said blockchain technology “could have made it easier to spot that these accounts were not being opened by the consumers behind them.”

“It would make it more difficult for someone to perform identity theft or impersonate others. It could also make it … [easier] to identify cases where someone is performing an action they're not supposed to do,” he added about using appropriate technology. “Of course, this all relies on it being implemented correctly, and on users understanding how to take advantage of the technology.”

(Related: As Advisors Jump Into AI, Experts Warn About Data)

Catalini further explained that blockchain technology provides “immutability and traceability.” Also, the cost of performing an audit using blockchain is “extremely low” if “you’ve recorded the right data on a distributed ledger,” he said.

“Making sure the data added to it is legitimate is still a concern.… A robust identity system is needed to avoid issues like the fake accounts,” he said.

In addition, Aaron Wright, founder/director of the Tech Startup Clinic at Cardozo School of Law, agreed that “Participants on public-blockchain based payment system, like Bitcoin, can avoid these Wells Fargo-like problems.”

“The accounts can be user controlled and there is a great deal of transparency in these systems – since information about all of the accounts are publicly accessible,” Wright said. “No one can create an account on your behalf unless you deputized them to do so and you can track all transfers between accounts fairly easily.”

However, Wright warned that if Wells Fargo relied on a blockchain “it wouldn't really solve the problem since the accounts are still controlled by a central intermediary: a bank. Blockchains don't solve garbage in, garbage out data problems.”

Bruce Fortado, a business professor at the University of North Florida, questions if technology is really the answer to avoid a repeat of the Wells Fargo scandal.

“If you view that technology holds no greater power than the people who create it, you will come to the conclusion that this is still a ‘people problem’ even if you utilize technology as an overlay,” Fortado said. “As individuals in the bank require different levels of financial service and advice, technology may serve as the initial guide in the consultation.

“However, as each advisor tailors his/her instructions to conform to the specific needs of the client, you quickly veer off the standardized advice ‘track.’ Additionally, there needs to be a trust there. This is what was violated at Wells Fargo.”

When asked about the controversy, Dimitri Sirota, CEO of BigID, said that fundamentally, “Incidents like this cause brand impairment and loss of trust. However, I would say that most enterprises are still reactive in response to a regulation rather than proactive to look at new approaches to protect and monitor data. Hopefully, in time, this changes.”

Meanwhile, Wells Fargo CEO Timothy Sloan has stated, “There is nothing more important to me and to Wells Fargo than rebuilding trust with our customers and helping them succeed financially. We are working hard to ensure this never happens again and to build a better bank for the future.”

Despite his statement, Sen. Elizabeth Warren (D-Massachusetts) wants to see Sloan fired as CEO, telling him at a recent Senate hearing, “At best you were incompetent, at worst you were complicit. Either way, you should be fired. Wells Fargo needs to start over and that won't happen until the bank rids itself of people like you, who led it into this crisis.”

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