A new financial regulatory framework for digital finance: Inspired by CBDC

Abstract

In recent years, a series of new digital financial technologies (fintech) such as open banking and distributed finance have emerged; however, the advancement of financial regulatory technology has been relatively sluggish. This study conducts a thorough analysis and simulation of a proposed innovative financial regulation solution inspired by central bank digital currency that combines homomorphic encryption algorithms with blockchain technology. Our findings demonstrate that the solution can assist regulatory authorities in validating input data through a process of obtaining accurate regulatory indicators from concrete financial scenarios without revealing confidential information from financial institutions. Moreover, the integration of homomorphic encryption algorithms with blockchain technology has promise for the automated and intelligent oversight of financial systems. Finally, our research findings offer vital insights to promote the implementation and expansion of financial regulation in the digital economy era.