ITFA Digital Negotiable Instruments (DNI) Initiative

An ambitious initiative has been some time in the making at ITFA. We are delighted to share it now as the world is being ravaged by COVID-19.

The need for more and better technology has never been clearer. The fragility of supply chains, SME finance and world trade has never been more exposed which is why as an association we continue to foster improved market practices and regulatory developments. The technological ingredients are of paramount importance as we experience in our daily lives.

Sean Edwards, Chair of ITFA explains: “As an association that began in the forfaiting markets of the 1990s but has since expanded its scope to cover a wide variety of forms of origination and risk distribution and which, more recently, has joined forces with the best of the new financial technology companies, we are well placed to understand what the market requires and how to bring it about.”

The aim of the DNI Initiative is to fully digitise bills of exchange (B/E) and promissory notes (PN). In order to achieve this, we identified the need to combine advanced document technology with electronic signatures and distributed ledger technology (DLT) whilst developing the appropriate contractual schemes and, where needed, lobby to change the law.

André Casterman, Chair of ITFA Fintech Committee explains the phased approach: ”The solution, referred to as an electronic payment undertaking (ePU), is an important step towards achieving full applicability of the 1882 Bill of Exchange Act. The ePU delivers a digitally native irrevocable, unconditional and independent payment undertaking that fulfils all requirements of a traditional negotiable instrument albeit subject to contract law rather than common law. The technology set-up integrates easily within existing processes, front-to back-office systems (e.g., China Systems, Finastra) and channels (e.g., SWIFT).”

Sean continues: “The principal obstacles we have encountered have been legal and not technical. It is unlikely that digital negotiable instruments would be valid under the current English law. ITFA has therefore lobbied the UK Government for a change in the law and is working with the Law Commission and ICC UK to achieve this. As a practical, but hopefully only interim, solution we have therefore, working with our legal advisers, Sullivan, created digital equivalents of the Bill of Exchange and Promissory Note that operate as a functional equivalent of the same instruments under the English Bills of Exchange Act 1882.”

We want to thank the following ITFA members for their precious feedback and involvement in this initiative: Enigio, Ebury, Lloyds Banking Group, China Systems, Finastra, Levantor Capital, Fineon Exchange, Traydstream as well as our advisors: Casterman Advisory, Sullivan and Trade Advisory Network. We look forward to benefit from additional input from the ITFA community as early adopters start extending the benefits of the ePU to their clients.

You can consult our overview presentation and guide entitled “A Manual of Digital Negotiable Instruments – Issues and Implementation” in the ITFA member area. In the meantime, you will find more insights on our dedicated blog entitled “ITFA fintechs joining forces to digitise negotiable instruments using advanced document technology”. Dedicated online educational sessions for ITFA members will be announced soonest.

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