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BAFT News and Press Releases


BAFT, Shearman & Sterling, and R3 Release Paper on Legal Background for Trade Finance Using Blockchain

by BAFT Admin | Sep 26, 2018
BAFT (Bankers Association for Finance and Trade), Shearman & Sterling, and R3 have released a technical paper, ‘Code Is Not Law: The Legal Background for Trade Finance Using Blockchain’, which examines the paths to securing legal recognition for “electronic negotiable instruments.”

There will be a webinar covering the paper on October 16th. 

To view the document please visit the BAFT Library of Documents page under White Papers or click here.


26th September 2018 (London/New York): Shearman & Sterling, R3, and BAFT (Bankers Association for Finance and Trade), have released a technical paper, ‘Code Is Not Law: The Legal Background for Trade Finance Using Blockchain’, which examines the paths to securing legal recognition for “electronic negotiable instruments.”

Despite general recognition that blockchain technology promises to be the basis for major improvements in the efficiency of trade financing, the absence of U.S. regulations and laws applicable to “electronic negotiable instruments” is an obstacle to the deployment of blockchain technology.

Most notably, while it has become technologically possible to execute transactions using negotiable instruments registered via blockchain technology, existing U.S. law recognizes negotiable instruments only if they are on paper and signed, which hinders the advancement of blockchain-based trade finance.

The paper outlines three paths to overcoming this challenge, including:

  1. Revise UCC Article 3 by amending its definitions so that Article 3 would cover electronic promissory notes and bills of exchange.
  2. Extend and amend the Uniform Electronic Transactions Act (UETA) to cover and provide for electronic promissory notes, as well as electronic bills of exchange.
  3. Create a rulebook that would be subscribed to by users of electronic negotiable instruments and that would fill in gaps in existing law. The rulebook would require electronic promissory notes and bills of exchange to be registered on a permissioned blockchain not accessible by the general public, where each transacting party would be bound by the rulebook.

While the ideal, long-term, solution would be to amend UCC Article 3, such amendment could take years to be prepared and enacted. In the interim, a viable solution is the creation of a rulebook that applies existing law to electronic instruments.

Shearman & Sterling is a member of R3’s Legal Center of Excellence, which was developed to collaborate with, and gather feedback from the legal sector on blockchain technology.  R3 is a member of BAFT, the global transaction banking industry association, and an active participant on the BAFT Innovation Council.

About BAFT
BAFT is an international financial services trade association whose membership includes banks in approximately 60 countries around the world, financial services providers, as well as a growing number of non-bank and financial technology companies. BAFT provides advocacy, thought leadership, education and training, and a global forum for its members in the area of transaction banking, including trade finance, cash management, payments, liquidity, and compliance.  For nearly a century, BAFT has played a unique role in expanding markets, shaping legislative and regulatory policy, developing business solutions, and preserving the safety and soundness of the global financial system.

In January 2016, BAFT established an Innovation Council which brought together financial institutions and financial technology companies to provide awareness, education, and guidance with regard to emerging technology impacting the transaction banking industry.  The Council channels its expertise to:  (1) promote innovation, (2) drive regulatory change commensurate with the evolution of the transaction banking business through the delivery of new technology, and (3) develop industry best practices and standards.  BAFT members (both banks and non-banks) are actively working, collaboratively and individually, to harness the power of distributed ledger technology to improve correspondent banking, international trade finance, and cross-border payments.”

About Shearman & Sterling
Shearman & Sterling is a global law firm with approximately 900 lawyers in 22 offices around the world. The firm partners with corporations, major financial institutions, emerging growth companies, governments and state-owned enterprises, to do financial and other transactions and to provide the legal advice and industry insight needed to navigate the challenges of today and achieve their future ambitions.

Shearman & Sterling’s FinTech Foundry program advises Financial Institutions and FinTech innovators shaping the future of financial services by providing legal advice to help them better understand, address and prepare for legal and regulatory challenges across the industry. As financial technology companies continue to grow in size and scale, federal and state regulators are following closely behind in an attempt to reign in a marketplace that has operated under relatively nonexistent regulation in recent years. As a result, fintechs are facing increasing concerns to future proof their businesses amid a complex and ever-changing regulatory environment. To avoid creating products and services that may be noncompliant with federal and state law, legal guidance and mentorship for fintech companies is critical.

About R3
R3 is an enterprise blockchain software firm working with a broad ecosystem of more than 200 members and partners across multiple industries from both the private and public sectors to develop on Corda, its open-source blockchain platform, and Corda Enterprise, a commercial version of Corda for enterprise usage.

R3’s global team of over 180 professionals in 13 countries is supported by over 2,000 technology, financial, and legal experts drawn from its global member base. R3 is backed by investment of over USD 120 million from more than 45 firms.

The Corda platform is already being used in industries from financial services to healthcare, shipping, insurance and more. It records, manages and executes institutions’ financial agreements in perfect synchrony with their peers, creating a world of frictionless commerce.