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BAFT Releases Best Practices for New Financial Asset on Distributed Ledger Technology

by Blair Bernstein | Jan 12, 2021
BAFT announces the publication of both the Business Best Practices and Technical Best Practices, Version 1.1, for the Distributed Ledger Payment Commitment (DLPC).

WASHINGTON - BAFT, the leading global financial services association for international transaction banking, today announced the publication of both the Business Best Practices and Technical Best Practices, Version 1.1, for the Distributed Ledger Payment Commitment (DLPC). The DLPC is a digital asset and global standard for a payment commitment that can be used on any blockchain network and can operate across networks. First released in August 2020, this latest version of the DLPC Best Practices incorporates industry comments and experience from implementation in live transactions.

Investigating the use of distributed ledger technology to expedite the digitization of trade finance, the BAFT Innovation Council established the DLPC working group in 2016. It was tasked with producing standardized rules for the transformation of a payment commitment, the common core of all negotiable trade instruments, into a digital asset to be used in any trade finance solution sitting on any distributed ledger technology platform. The working group introduced the DLPC Best Practices for trial use in April 2019.

Since then, the DLPC has been implemented in live transactions as a digital asset backed by a traditional trade instrument, such as a guarantee, as a means for enterprises to finance international trade transactions and facilitate the ultimate resulting payments. With the recent guidance from the U.S. Office of the Comptroller of the Currency endorsing bank participation on blockchains and use of stablecoins for payments, the DLPC is in position to make a significant contribution to the new rails of transaction banking.

"In just a little over a year, the DLPC has grown from being a global standard for traditional payment commitments to a new financial asset and payment instrument in its own right,” said Rebecca Liao, co-founder and COO of Skuchain and co-chair of the DLPC working group. “The trade finance community was hungry for an innovation with a solid legal framework that would allow transactions to be digitized, de-risked, negotiable, and interoperable across platforms to promote greater liquidity and market efficiency."

“The DLPC breaks new ground for financial services firms seeking to leverage the unique characteristics of distributed ledger technology,” said Samantha Pelosi, senior vice president for payments and innovation, BAFT. “Use of the DLPC facilitates the interoperability of disparate blockchain platforms and creates what is currently the only digital negotiable instrument with legal backing. These best practices provide for sound validity under Delaware law, and BAFT continues to advocate for the amendment of laws to grant similar legal status to digital negotiable instruments used in cross-border transactions.”

The DLPC working group consists of 12 representatives from BAFT and the following organizations: Arnold & Porter Kaye Scholer, CGI, Citi, GTBInsights LLC, Morgan, Lewis & Bockius, Queen Mary University of London, R3, Red Chalk Group, Skuchain, Standard Chartered, Surecomp, US Bank, Wells Fargo, and Young Conaway Stargatt & Taylor.

To read the DLPC Best Practices, visit our Library of Documents under the Industry Definitions and Guidelines section.

About BAFT
BAFT is the leading international financial services association whose membership includes large global and regional banks, service providers, and fintech companies headquartered around the world. BAFT provides advocacy, thought leadership, education, and a global forum for its members in transaction banking, including international trade finance and payments. For nearly a century, BAFT has expanded markets, shaped policy, developed business solutions, and preserved the safety and soundness of the global financial system. Learn more at www.baft.org.

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