Innovation

Global Trade Review: ICC Targets Digital Trade Legal Reform in 100 Countries with Industry-Wide Board

Via Global Trade Review

The International Chamber of Commerce (ICC) has formed an advisory board comprising intergovernmental, policy and industry actors in the global trade and trade finance industry, in order to accelerate progress on the worldwide legal reform needed to enable digital trade.

Launched today under the auspices of the ICC’s Digital Standards Initiative (DSI) governance board, the Legal Reform Advisory Board (LRAB) is co-chaired by Chris Southworth, secretary general of ICC UK and Valentina Mintah, customs and logistics expert and member of the ICC executive board. Its members so far include the Asian Development Bank (ADB), BAFT (Bankers Association for Finance and Trade), the Commonwealth, ICC France, ICC Germany, ICC Mexico, the International Trade and Forfaiting Association (ITFA) and the United Nations Commission on International Trade Law (UNCITRAL).

GTR understands that 30 organizations in total have agreed to join the board, although these are yet to be announced.

The aim of the LRAB is to combine its members’ reach and influence to drive a globally harmonized, digitalized trade environment. “We have made enormous progress on legal harmonization over the last two years. The LRAB will play a vital role in helping us scale legal reforms,” says Southworth.

He tells GTR that the board will immediately get to work on numerous fronts. One of these will be on maintaining momentum at the G7, following the commitment made earlier this year by the intergovernmental group’s digital and technology ministers to adopt electronic transferable records in international trade transactions. In addition, the LRAB will focus its efforts on scaling the initiative up through the G20 – aiming to achieve a similar commitment in 2022.

Another area of work is within the European Union, where the LRAB will set its sights on getting an EU-wide mechanism in place to facilitate the alignment of EU laws to the UNCITRAL Model Law on Transferable Electronic Records (MLETR).

Other tasks on the to-do list include obtaining a Commonwealth ministerial commitment at the Commonwealth Heads of Government Meeting, which will be held in Rwanda in 2022, as well as working to incorporate legal harmonization into the framework of the African Continental Free Trade Area. Southworth tells GTR that LRAB will seek to secure funding for lower-income countries to enable them to implement the necessary legal changes.

“Digitalization is key to narrowing the US$1.7tn trade finance gap, but we can’t get there without an enabling legal environment. Reform is needed and the LRAB will help us scale existing efforts,” says Steven Beck, head of trade and supply chain finance at the ADB.

The LRAB also intends to work with the World Trade Organization to include a commitment to MLETR alignment in its plurilateral e-commerce agreement.

Finally, the LRAB will support individual governments to use their bilateral trade negotiations – such as those already agreed or underway between Singapore and the UK, the Abu Dhabi Global Market and China, as a vehicle to align legal frameworks and build out a network of modern digital trade highways.

“The Covid-19 pandemic massively accelerated digital transformation across a range of sectors, but outdated legal frameworks continue to inhibit the digitalization of trade finance,” says Raoul Renard, deputy director of legal reform at the DSI. “I look forward to working with our co-chairs and LRAB members – such as the ADB – to enable the necessary legal reform and bring trade finance into the 21st century.”

“Everyone coming together within the LRAB sends a strong message to policymakers and governments worldwide that industry is serious about effecting legal reform as well as ensuring a level playing field so that no-one is left behind,” Southworth tells GTR.

He adds that he expects to see “upwards of 100 countries” getting on board over the course of 2022-23.

Currency Agnostic Blockchain Debuts for Global Trade

Commodities purchases worth around $43 million from Peru under the initiative of Mitsubishi Corporation (Americas) were made over multiple transactions using Skuchain’s currency agnostic blockchain for digital trade assets, which were used for payment through Mizuho Bank.

MOUNTAIN VIEW/SINGAPORE/TOKYO — Metal commodities worth around $43 million were purchased from one of the largest mines in Peru under the initiative of Mitsubishi Corporation (Americas). The purchases were made over multiple transactions using Skuchain‘s currency agnostic blockchain for digital trade assets that were used for payment through Mizuho Bank.

The digital asset issued by the buyer was a Distributed Ledger Payment Commitment (DLPC), a digital negotiable instrument with a full-fledged legal framework published by BAFT (Bankers Association for Finance and Trade), the largest trade association for transaction banking.

Skuchain’s blockchain managed the lifecycle of the digital asset from issuance to discharge and triggered secure payment instructions to Mizuho. This makes open account trade transactions frictionless and with a similar level of security as Letters of Credit, Guarantees and other traditional trade instruments, at a reduced cost.

Mitsubishi Corporation (Americas) appreciated the precise control this provides the company over its counterparty payments and seeks to expand the usage of blockchain managed DLPCs to underwrite its own transactions as well as encourage its customers to replace current trade finance instruments with the DLPC. By placing control over trade finance arrangements squarely in the hands of the enterprises that need it while tapping into vast pools of capital at banks and other financial institutions gives the company more liquidity and trading capacity.

“People have talked about Blockchain and supply chain for at least 5 years. We just moved past the talk stage to actually move thousands of tons of a physical commodity across 10,000 miles backed by bank-acceptable digital assets worth $43m on our blockchain and we did it faster, cheaper, and more secure than what came before,” said Srinivasan Sriram, Founder and CEO at Skuchain.

“We are very honored to collaborate with Skuchain and Mizuho Bank to conduct the first DLPC transactions in real trading. We would like to continuously pursue further opportunities to apply DLPC to provide better services to our customers and partners,” said Yuichiro Yoshinari, Director, Innovation and Design Thinking at the Silicon Valley Branch of Mitsubishi Corporation (Americas).

“We are honored to have conducted the first DLPC transactions with Mitsubishi Corporation (Americas) and Skuchain. We would like to accelerate the improvements in our ability to provide services to meet customers’ diverse needs by utilizing cutting-edge technologies in trade finance,” said Yoshisuke Maeda, General Manager at Mizuho Bank, Global Transaction Banking Department.

Tod Burwell, President & CEO, BAFT stated “Digitization of trade requires standards as well as supporting legal framework. We were delighted to work with our members to develop the DLPC for this purpose, and even more excited that this has been successfully put into practice to facilitate live transactions.”

About Mitsubishi Corporation (Americas) and its Silicon Valley Branch
Mitsubishi Corporation (Americas) is a wholly owned subsidiary of Mitsubishi Corporation, a global integrated business enterprise with 10 business groups that operate across virtually every industry. These include natural gas, industrial materials, petroleum and chemicals, mineral resources, industrial infrastructure, automotive and mobility, food, consumer, power, and urban development. The Silicon Valley Branch, which led this project, is an innovation hub that scouts and tests new technologies and startups to lead the company’s digital transformation. Learn more at https://www.mitsubishicorp.com/northamerica.

About Skuchain
Skuchain provides enterprises and banks a currency agnostic blockchain for global trade. Its platform powers value chains that leverage data and capital to achieve optimal resilience and flexibility. Skuchain’s solutions have been adopted across mining and minerals, food and agriculture, electronics, auto and finance in Asia, Europe and the US. Learn more at https://www.skuchain.com.

About Mizuho Bank
Mizuho Bank, Ltd. is a leading global bank with one of the largest customer bases in Japan, and an extensive international network covering financial and business centers around the world. Learn more at https://www.mizuhogroup.com/.

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.

World Economic Forum: How Decentralized Finance Will Transform Business Financial Services

Via World Economic Forum

Decentralized finance (DeFi) is emerging as a tool for smaller businesses in developing markets, particularly for remittances and small loans; the transaction banking industry is beginning to see DeFi’s potential to overhaul the inflexibility of present processes; uptake of DeFi in transaction banking could open up new capital opportunities for larger companies and increase liquidity for SMEs.

Decentralized finance had a resurgence last summer. Cryptocurrencies like bitcoin and ether are now becoming more widely accepted for payments and USD Coin (USDC) has made significant progress towards being an asset that will maintain its value without future depreciation.

At the same time, the blockchain technology that underlies cryptocurrency and its supporting financial infrastructure are on their way to offering a system of financial rails in parallel to – and connected with – traditional financial infrastructure.

Both Coinbase and Compound Treasury have released USDC-based loans that guarantee at least a 4% yield (far higher than traditional products of a similar risk), and smaller platforms are offering cross-border access to capital with rates that are far more variable but would be unavailable otherwise. So far, this growth in loan products has come from the retail sector: individuals holding and trading crypto-assets for personal use. Banks such as Morgan Stanley and US Bank now offer crypto-products for their wealth management clients. But what about businesses?

Since its inception, DeFi – literally decentralized finance or blockchain-based forms of finance that do not rely on centralized intermediaries such as banks – has been adopted to some extent by smaller businesses in developing markets whose needs are unmet by the traditional banking system. For example, some businesses use payment companies like BitPesa in Africa, Tranglo in ASEAN and the major DeFi exchanges to either make direct payments or convert payment amounts to USD-backed stablecoin for cross-border remittance.

The greater transaction banking industry now sees DeFi as a potentially significant growth engine and disruptive force. Transaction banking addresses the operational needs and day-to-day transactions of businesses and financial institutions. Usually, only companies who are top customers of banks are able to have ready access to these services, which focus on managing the liquidity of a company, cash flows, trade and supply chain finance and other instruments needed to facilitate domestic and international corporate transactions. In 2020, industry-wide transaction banking revenue reached $1 trillion.

According to Samantha Pelosi, SVP of Payments and Innovation at BAFT, the largest trade association for transaction banking: “The potential efficiency gains and democratization of finance associated with DeFi are attractive to traditional financial institutions. However, DeFi negates the need for relationships with trusted intermediaries, which makes the model disruptive and somewhat alien to these banks.”

Virtually all major international commercial banks have at least piloted the use of blockchain for transaction banking services – which remain slow and cumbersome – but none of these pilots have involved DeFi. Rather, they focus on making bank processes more efficient and replacing traditional financial instruments with standardized digital assets. That means the approval and execution of transactions still ultimately go through the framework of traditional banking or more established fintechs. For example, a business’ credit risk is assessed based on financial statements and only applies to that specific business, without the ability to distribute risk across its system. The infrastructure around client support is also quite extensive, which means clients cannot be serviced without a high threshold cost. These practices hamper capital opportunities for larger enterprises and freeze out SMEs.

DeFi platforms provide an alternative system, not simply a plug-in to existing banks. Their decentralized nature means transaction onboarding and market-based risk assessments are much easier to scale across a business’ wider system because access to relevant information is not dependent on centralized processing or a prior relationship. Prior to DeFi, a business would have to complete anti-money laundering and “know your customer” checks for every source of capital and convince their counterparts to onboard to the same transaction banking programmes. They also would not be able to present evidence of performance on their debt or payables outside of financial statements.

DeFi allows for the exchange of trustable data across a system, mitigating these barriers to business financial services. Until now, however, most companies did not seriously consider DeFi as a viable alternative to their bank’s services because of the volatility of crypto-assets, regulatory uncertainty and the immature technology involved. Even Tesla’s purchase of $1.5 billion in bitcoin was motivated by the direct financial value of bitcoin as an asset, not by its transaction banking needs.

While DeFi previously solved the complex requirements around portable digital ID for businesses and has a roadmap for providing access to financial performance track records in transaction banking, it completely lacks two crucial elements: a one-to-one exchange with fiat currency; and interoperability between different blockchains so that counterparties could freely interact with one another. The former is necessary for cryptocurrency to offer a stable store of value that can be used as currency and to have an easily accessible interface with the traditional financial system. Interoperability is crucial for transactions to occur at scale in the highly fragmented blockchain space.

Trade Digitization in A Post-Pandemic World

New BAFT whitepaper analyzes the state of trade digitization at the end of 2020, the progress made during the COVID-19 pandemic and highlights necessary actions to ensure continued advancement

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, in collaboration with the International Chamber of Commerce (ICC) and the International Trade and Forfaiting Association (ITFA) today announced the publication of a new whitepaper, Progress on Trade Digitization 2021. The whitepaper analyzes the state of trade digitization at the end of 2020, highlights progress made during the COVID-19 pandemic and proposes additional changes to ensure digitization’s continued and sustainable advancement.

According to a 2020 ICC Annual Survey, 54% of respondents revealed they introduced new digital solutions to address difficulties posed by COVID-19. These digital initiatives took various forms, including mobile network providers reducing fees, governments raising contactless limits to reduce in-person cash transactions and increased daily and monthly limits for users.

“While these digital developments in the wake of COVID-19 were incredibly helpful, our ultimate goal is to make positive changes that are sustainable long-term,” said Stacey Facter, senior vice president, trade products, BAFT. “To do that requires a legal environment that allows for digital documents to scale, as well as a global adoption of the standards in place today and continued support for those still under development. These are critical factors in maintaining the forward momentum of digitization.”

“The arguments in favor of digitization have been accepted by the majority of the world’s biggest trading nations but implementation still remains a work in progress,” said Sean Edwards, chairman, ITFA. “Fortunately, we possess the tools and resources to make this happen and the pace of change can be very quick with the right support.”

The whitepaper highlights six countries as case studies in how governments can implement reforms that harmonize their domestic legal frameworks with UNCITRAL’S Model Law on Electronic Transferable Records.

It also discusses the need for cross-industry, cross-technology platform-based standards to improve the effectiveness and efficiency of digital trade. The paper offers examples of standards available today and encourages stakeholders to consider how they can leverage them. For those interested in going a step further, the paper suggests participating in the creation of global standards through the DSI.

To read Progress on Trade Digitization 2021, click here.

BAFT Media Contact:
Blair Bernstein
Director, Public Relations
[email protected]
+ 1 (202) 663-5468

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

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.

BAFT Media Contact:
Blair Bernstein
[email protected]
+ 1 (202) 663-5468

BAFT and CGI Launch Trade Technology Survey at 2020 Virtual International Convention

BAFT and CGI recently conducted a survey of more than 200 BAFT members in an effort to better understand the current state of technological advancements in trade, and how the pandemic has accelerated their importance and need.

WASHINGTON – More than 70 percent of bank respondents reported a culture of increased innovation in trade finance during the last year, according to a new survey conducted by BAFT, the leading global financial services association for international transaction banking, and CGI, a multinational, independent IT and business consulting services firm. In fact, nearly 85 percent of survey participants reported increased digitization efforts at their financial institution in the wake of the COVID-19 pandemic.

BAFT and CGI conducted its survey of more than 200 BAFT members in the summer of 2020 in an effort to better understand the current state of technological advancements in trade, and how the pandemic has accelerated their importance and need.

The survey found that banks have been driving new digitization efforts, forming consortia with financial and corporate partners, searching for compliance solutions, and re-examining existing processes to create efficient operations.

“Over the last 10 years of my career, we have been discussing automating trade finance processes,” said Stacey Facter, senior vice president, trade products, BAFT. “COVID-19 has underscored the need to move away from paper and seemingly expedited the transition. BAFT works to identify barriers to innovation and address them head on to continue driving the global trade finance industry to embrace digitalization.”

Digitization initiatives are underpinned by technologies such as blockchain/DLT platforms, intelligent process automation, artificial intelligence, machine learning, natural language processing, and robotic process automation.

“The BAFT and CGI survey reveals that while banks continue to face legal, regulatory, and compliance challenges, the industry is making advances with newer technologies that support integrated platforms and provide seamless transactional workflows,” said Patrick DeVilbiss, director of consulting, trade and supply chain solutions, CGI.

The full survey and results will be presented at BAFT’s 2020 Virtual International Convention on Thursday, November 19 at 10:35 ET / 15:35 GMT during the ‘Trade Technology: Today’s Focuses, Tomorrow’s Promises’ session. This session will discuss the results of the survey and provide insight on the current state of technological advancement in trade featuring Normand D’Arcy, senior manager, international services, National Bank of Canada; Patrick DeVilbiss, director of consulting, trade and supply chain solutions, CGI; Stacey Facter, senior vice president, trade products, BAFT; and Marc Smith, CEO & founder, Conpend.

To view the survey’s results including respondents top technology investments over the next five years, top challenges in meeting shifting business needs, culture of innovation, fintech collaboration, and more, visit our Library of Documents under the Surveys section or click here.

About CGI
Founded in 1976, CGI is among the largest independent IT and business consulting services firms in the world. With 76,000 consultants and other professionals across the globe, CGI delivers an end-to-end portfolio of capabilities, from strategic IT and business consulting to systems integration, managed IT and business process services and intellectual property solutions. CGI works with clients through a local relationship model complemented by a global delivery network that helps clients digitally transform their organizations and accelerate results. CGI Fiscal 2020 reported revenue is C$12.16 billion and CGI shares are listed on the TSX (GIB.A) and the NYSE (GIB). Learn more at cgi.com.

BAFT Media Contact:
Blair Bernstein
[email protected]
+ 1 (202) 663-5468

Address

Phone

Sitemap

Social