By Achille d’Antoni, Founder, Traydstream and André Casterman, Founder, Casterman Advisory and Chair of Fintech Committee, ITFA

There is no doubt that 2020 has been a pivotal year for trade digitisation. Technologies have evolved so much over the recent 2-3 years, and the most innovative ones such as electronic signatures and Distributed Ledger Technologies (DLT), are being more and more accepted in financial services.

How can trade finance benefit from those? How can friction coming from manual processes and use of paper be removed from financing processes? How can available technologies be used more widely to help finance SMEs?

COVID-19 has underlined the many obstacles for banks and corporates to process paper-based trade finance transactions. This has encouraged banks to heighten efforts around trade digitisation. Whereas “digital trade” innovations were traditionally handled by banks quite reactively and opportunistically to address large corporate needs (e.g., supply chain finance, multi-bank standards such as MT 798), we have witnessed in 2020 a shift of mindset given the need to ensure business continuity. Banks have started to consider digital trade options in at strategic. As an example, the delays introduced in transactions by slow courier services which are critical to deliver paper originals such as bills of exchange, guarantees, bills of lading, … to the right counter-parties have been significant despite many established paperless options. Why are those options not widely used if they bring so many benefits?

Policy makers hold the key to remove the final stumbling blocks and make “paperless trade” real. Considering the various regulatory hurdles to take advantage of those “digital trade” solutions, a number of banks and banking associations have started to engage with their policy makers to advocate around the need for regulatory support.

Trade is global and in order to facilitate global coordination of those advocacy efforts, ITFA set up an expert and coordination team in place in Q2 2020 that we called Technology Experts for Regulatory Action or TERA. Founding members include Sam Sehgal (Traydstream), Achille d’Antoni (Traydstream), Lars Hansén (Enigio) and ITFA Board Members – André Casterman (Casterman Advisory, Tradeteq) and Sean Edwards (SMBC). The TERA team has attracted additional contributors and now acts a center of expertise with regards to regulatory advocacy. The group has since expanded with representatives from JPMorgan, Citi, Bolero, UNCITRAL, HBL, HSBC, EBRD, Standard Chartered Bank, SMBC, SocGen, Nabu, …

The TERA task force identified the following 6 critical areas for banks and technology providers to engage their policy makers on:

The task force fits with both ITFA DNI Initiative and TFD Initiative in terms of enabling higher use of technology-based instruments and market practices that highly specialised fintechs have introduced recently:

Here are the key take-aways from our engagement with various banks around the world:

The overall progress achieved by new technologies is massive, and forward-looking players embrace those enthusiastically:

Policy makers do not stand still and start facilitating widespread use of those technologies as well:

On the ITFA Fintech Committee side, we witness very promising developments:

Both CargoX and XinFin leverage the power of hybrid blockchain technology for trade finance. The hybrid blockchain is distinguishable from the fact that it is not open to everyone, but still offers blockchain features such as integrity, transparency, and security. It combines the best of public and private data sharing and is particularly suited for highly regulated industries such as financial services. There are numerous benefits to using a hybrid blockchain like the speed of private blockchains combined with the security of public blockchains. The private blockchain is used to generate a hash of transactions which is later verified using the public blockchain.

Also banking associations such as ITFA and BAFT have leading industry-wide initiatives in this area:

All above mentioned legal and technology developments demonstrate the firm willingness of all stakeholders to further digitise complex practices that are supporting global trade and receivables financing. Policy makers now hold the key to make it happen in the most impactful way, which is why short-term deliverables are highly anticipated. The ITFA TERA task force will continue to operate as an expert team supporting local advocacy efforts. We will also continue to update the trade community going forward through our frequent webinars.

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