Automated Regulatory Compliance Verification in Financial Smart Contracts Using Rule-Based Engines

Abstract

Ensuring regulatory compliance in financial smart contracts has become increasingly critical as global fintech ecosystems adopt decentralized and automated processing mechanisms. Traditional compliance verification remains manual, time-consuming, and prone to interpretation errors, particularly when regulations evolve rapidly across jurisdictions. This paper proposes a hybrid automated compliance verification architecture that integrates rule-based engines with blockchain-enabled smart contracts to deliver real-time regulatory assessment. The system converts legal and financial regulatory norms—such as GDPR, IFRS, KYC/AML guidelines, and regional financial directives—into structured machine-readable rules, enabling automated validation of contract clauses before and during execution. A regulatory rule parser interprets natural-language policy texts and transforms them into deterministic logic, which is executed on a robust rule engine. Smart contracts interact with this engine to evaluate compliance events without compromising contract autonomy. The framework is integrated with SAP-based contract management tools to demonstrate automated GDPR data-handling checks and IFRS-driven financial reporting validation. Experimental evaluation shows that the hybrid architecture reduces compliance-checking time, enhances audit traceability, and minimizes regulatory breach risks. The proposed approach provides a scalable and transparent compliance verification solution for organizations seeking to automate governance processes across modern financial communication systems.