Guide To Proof Of Reserve (PoR) is an essential component of any financial system, ensuring a financial institution has enough money on hand to honor its liabilities and commitments and instill trust in the system. In this comprehensive guide we will outline what PoR is, the different types of PoR systems available, its importance within financial systems as well as discuss any benefits or drawbacks associated with each. Finally we will outline steps required to implement PoR systems within organizations.
1) Types Of PoR Systems
There are three different PoR systems. Fully Audited PoR (FA PoR) requires an independent third-party audit of a financial institution’s reserve fund by either an accounting firm, outside auditor, or internal audit team; Bank-Lite PoR (BL PoR) instead allows financial institutions to track and control their own funds, with responsibility placed solely on them to maintain appropriate amounts in their reserve funds.
2) Regulatory Requirements For PoR Systems
Regulatory requirements for Proof of Risk systems will depend upon both the industry in which a financial institution operates and the type of PoR system implemented by that organization. Most financial regulators have yet to issue definitive guidelines for PoR systems.
Specific requirements will depend on which regulator is being addressed, but any financial regulator should mandate periodic audits to verify that a PoR system is functioning effectively.
3) The Benefits And Drawbacks Of Each Type Of PoR System
FA PoR – An FA PoR provides the most exhaustive verification that a financial institution possesses sufficient reserves. As this third-party audit process is by far the most stringent, it also tends to be one of the more costly.
BL PoR – A BL PoR provides less comprehensive yet less costly verification of a financial institution’s reserve fund, leaving more funds in reserve funds as verified funds by keeping track of and verifying them themselves. With this type of PoR, each financial institution must track and verify its own funds separately – keeping and verifying accurate amounts are present in each reserve fund at once.
4) Steps To Implement A PoR System
Implementing a PoR system begins by choosing which type your organization will use. After making your selection, the next step should be creating an implementation plan which details all necessary steps that will need to be taken for its deployment.
Your PoR system must be tailored to its features; different systems have unique requirements that must be fulfilled for full functionality.
A Proof-of-Rendezvous system (PoR) is an essential element of any financial system, serving to verify that financial institutions possess sufficient funds to fulfill their obligations while building trust among participants by enabling them to verify exactly how much money exists in the system.
Each regulator has different requirements for how funds must be verified, so it is vitally important that you determine who has jurisdiction over your organization, and create a plan on how you will implement a PoR system in your company.