Corporate governance is central to the health and stability of any financial system, ensuring transparency, accountability, and trust among stakeholders. However, Sri Lanka’s finance sector has repeatedly suffered governance failures, exposing significant weaknesses. High-profile collapses of banks and financial institutions such as Pramuka Savings Bank, Golden Key Credit Card Company and The Finance Company highlight the urgent need for robust governance mechanisms. These failures have eroded public trust and underscored the importance of innovative solutions like Blockchain technology.
A Technological Remedy for Governance Failures
Blockchain technology, a decentralised digital ledger, offers unmatched transparency, security, and efficiency. By eliminating intermediaries and ensuring tamper-proof records, Blockchain has the potential to revolutionise governance in Sri Lanka’s banking sector. Its ability to provide immutable transaction records, automate compliance processes, and facilitate real-time monitoring can address issues of fraud, mismanagement, and accountability.
Countries such as Singapore and Switzerland have successfully integrated Blockchain into their financial frameworks, showcasing its potential for improved governance. Sri Lanka can adapt these best practices to its unique regulatory and institutional landscape, transforming its financial sector.
Corporate Sector Gatekeepers: The Catalysts of Change
The term “corporate sector gatekeepers” refers to key governance figures, particularly Corporate Management, who set standards, drive change, and oversee the implementation of strategies and technologies. As per Agency Theory, these gatekeepers act as agents entrusted with safeguarding the interests of shareholders (principals) while managing the organisation’s operations. Their pivotal roles in policy, strategy, and operations position them as essential agents in reshaping governance frameworks through Blockchain, balancing the interests of various stakeholders and ensuring transparency and accountability.
Insights from Corporate Sector Gatekeepers: Overview of the Research Study
The study conducted explored the perspectives of managers, or corporate sector gatekeepers, in Sri Lanka’s banking and finance sector on adopting Blockchain technology for corporate governance. Managers were selected for this research due to their pivotal role in shaping and executing governance frameworks. As key decision-makers, they possess unique insights into both strategic planning and operational implementation, making their perspectives invaluable for evaluating technological adoption.
The research engaged participants from a number of listed companies, including banks and finance institutions, to understand their readiness and behavioural intentions to use Blockchain technology to discharge governance. Managers’ role as agents—as per Agency Theory—places them at the centre of the governance process, responsible for aligning organisational practices with stakeholder interests and ensuring accountability. By assessing their views, the study aims to uncover critical enablers and barriers to Blockchain adoption, providing actionable insights into its potential to enhance corporate governance.
Key Findings: Blockchain’s Potential in Governance
Behavioural Intentions of Corporate Gatekeepers
The study’s findings indicate that corporate sector gatekeepers in Sri Lanka’s banking sector exhibit an average to favourable level of intention to integrate Blockchain into corporate governance in the finance sector. Such findings also indicate that there is clear enthusiasm for the potential of Blockchain, and several key factors influence their intention to adopt Blockchain technology in discharging corporate governance.
The findings indicate that the adoption of Blockchain technology is strongly motivated by its perceived benefits, which include significant enhancements in governance efficiency, substantial fraud reduction, and the bolstering of stakeholder confidence. These advantages align closely with the critical need to rebuild public trust in the financial sector, which has been eroded by recurring issues related to transparency and accountability. By providing a secure, immutable, and transparent record-keeping system, Blockchain addresses systemic vulnerabilities, reducing opportunities for fraud and corruption. Furthermore, its decentralised nature ensures equitable access to information, fostering a culture of trust and collaboration among stakeholders. This technology’s ability to enhance regulatory compliance and streamline processes reinforces its potential as a transformative tool to tackle long-standing challenges in governance and financial management, paving the way for a more accountable and resilient financial ecosystem.
However, challenges such as implementation complexity, security concerns, and regulatory uncertainties temper their enthusiasm. Managers recognise that adopting Blockchain involves significant technological and financial investments and a cultural shift within organisations. These factors require careful planning and strategic alignment with organisational goals.
One critical observation is the variation in Blockchain adoption intentions based on the size and resources of institutions. Larger banks, with better technological infrastructure and financial capacity, demonstrate higher readiness compared to smaller financial institutions. This disparity underscores the need for targeted interventions to bridge the gap, such as government-led incentives and public-private partnerships.
Managers also highlight the importance of tailored training programs to familiarise them with blockchain’s capabilities and applications in governance. The lack of technical knowledge and hands-on experience among many gatekeepers creates a significant barrier to adoption. Comprehensive capacity-building initiatives, including workshops and pilot projects, could address these gaps and empower managers to champion Blockchain adoption within their organisations.
Another influential factor is the perceived security of Blockchain technology. While blockchain’s decentralised and immutable nature inspires confidence, concerns about cybersecurity threats, such as hacking and data breaches, persist. The study participants stress the importance of robust security measures and clear regulatory frameworks to mitigate these risks. Additionally, they advocate for collaborative efforts between industry stakeholders and policymakers to develop standards and protocols that ensure secure Blockchain implementation.
Regulatory clarity emerges as a central theme in shaping managerial intentions. The absence of well-defined legal guidelines governing Blockchain usage creates uncertainty and inhibits widespread adoption. The study participants emphasise the need for policymakers to establish a clear regulatory roadmap that aligns with international best practices while addressing Sri Lanka’s unique context. Such a framework would provide the legal certainty required to integrate Blockchain into corporate governance seamlessly.
Benefits of Incorporating Blockchain in Discharging Corporate Governance
Blockchain offers several advantages in properly discharging Corporate Governance :
* Real-Time Transparency: Blockchain provides instant access to financial records and shareholder information. This transparency empowers decision-makers with real-time data, fostering better-informed decisions and enabling prompt responses to irregularities. Furthermore, it enhances accountability by creating an immutable record of transactions accessible to stakeholders.
* Cost Savings: Blockchain significantly reduces operational expenses by automating key processes such as auditing, compliance, and contract management. Reducing manual interventions minimises human errors and streamlines workflows, creating a cost-effective governance framework. Additionally, eliminating intermediaries in transaction verifications leads to substantial savings for financial institutions.
* Fraud Prevention: Blockchain’s tamper-proof architecture ensures that financial records cannot be altered once entered. This immutability deters fraudulent activities, safeguards corporate assets, and improves trust among stakeholders. The technology also facilitates traceability, enabling the identification and prevention of suspicious activities in real time.
* Improved Stakeholder Trust: Transparent processes and the assurance of data integrity foster confidence among investors, regulators, and customers. By leveraging Blockchain, organisations demonstrate a commitment to ethical practices and robust governance, enhancing their reputation and credibility in the financial sector.
Overcoming Challenges
Despite its potential, Blockchain adoption faces several challenges that must be addressed to maximise its benefits:
* Awareness and Training: A significant barrier to Blockchain implementation is the lack of understanding among corporate sector gatekeepers. Many managers are unfamiliar with blockchain’s functionalities and its potential applications in governance. To overcome this, organisations should invest in targeted training programs and capacity-building initiatives. These programs should focus on the practical application of Blockchain in governance, including case studies and pilot projects to demonstrate its efficacy.
* Regulatory Clarity: The absence of clear legal frameworks governing Blockchain usage creates uncertainty and inhibits adoption. Policymakers must prioritise the development of comprehensive regulations that address security, privacy, and compliance standards. By establishing guidelines aligned with international best practices, regulators can provide the legal certainty needed to encourage Blockchain integration.
* Resource Constraints: Implementing Blockchain technology requires substantial financial and technological investments. Smaller financial institutions, in particular, may lack the resources needed to adopt this technology. To address this, government and industry leaders should explore funding mechanisms, such as subsidies and grants, to support smaller institutions. Collaborative efforts, including public-private partnerships, can also help pool resources and expertise.
* Cybersecurity Risks: Although Blockchain is inherently secure, vulnerabilities such as smart contract bugs and private key mismanagement pose potential risks. Organisations must adopt robust cybersecurity measures to protect their Blockchain systems. This includes regular audits, the use of secure coding practices, and ongoing monitoring to detect and mitigate threats.
By addressing these challenges, Sri Lanka’s financial sector can harness blockchain’s transformative potential to improve governance practices, rebuild public trust, and create a more resilient financial ecosystem.
The Path Forward
For Sri Lanka’s banking sector, Blockchain adoption presents an unprecedented opportunity to rebuild trust and redefine corporate governance. Managers as corporate sector gatekeepers must champion this transition, ensuring smooth implementation and long-term sustainability. Policymakers and industry leaders should collaborate to provide training, establish regulations, and pilot Blockchain projects to address existing gaps. With concerted efforts, Sri Lanka can position itself as a leader in governance innovation, securing a stable and trustworthy financial ecosystem for the future.
By: Ajani Fernando
Manager – Education & Training Department
The Association of Accounting Technicians of Sri Lanka (AAT Sri Lanka)
Prof. (Dr.) Roshan Ajward
University of Sri Jayawardenapura, Sri Lanka
