Payments

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 Publishes Joint Paper Covering Digital Rapid Response Measures Taken By Banks Under COVID-19

In a global emergency, international trade may slow but it must not stop. Even as COVID-19 reveals the shortcomings of a paper-based trade system, financial institutions (FIs) are finding ways to keep trade circulating. How are they doing it? Read this joint paper published on April 23, 2020 from BAFT, the ICC and the ITFA entitled ‘How Banks Are Going Digital To Manage COVID-19’.

This paper, jointly published with the ICC and the ITFA, collates common practices undertaken by global banks in the COVID-19 emergency situation and shares some guidance. This is not a “best practices” document and many of the practices described are being improved already. Rather it is a practical reference document with information about measures put in place to continue the flow of trade and trade finance when paper transfer has become difficult or impossible.

The COVID-19 pandemic has disrupted shipping, in-person interactions, and travel. As such, alternative procedures are required to settle trade finance transactions. Data is sourced from 2020 data from ICC, ITFA and BAFT members.

This brief shares the ad hoc practices being implemented by FIs under the COVID-19 pandemic. Their approaches are different from every previous global crisis in that responses target the singular problem of how to keep trade flowing when physical interactions are impracticable. The document makes clear that these quasi-digital solutions are interim only until actual e-enabled digitized solutions are fully developed.

Read the full paper from the ICC Digitalisation Working Group in the Library of Documents page under White Papers.

BAFT Updates USD Payments Information Chart

BAFT recently updated its chart of information required by over 50 jurisdictions for the processing of both inbound and outbound USD wire transfers.

BAFT first issued the chart in 2016 as an appendix to the paper entitled Practices and Guidance for Formatting Payments and Handling Inquiries Related to the Financial Action Task Force (FATF) Recommendation 16.

A group of experts on large-value, cross-border payments sitting on BAFT’s Payments Committee brought the information in the chart up to date through end of calendar year 2019. Samantha Pelosi, Senior Vice President for Payments & Innovation at BAFT remarked that, “We are happy to provide this invaluable resource to the correspondent banking community again this year.”

The chart available to BAFT members at no charge and to non-members for a nominal fee. It can be found on the BAFT website in the Library of Documents, under “Best Practices and Industry Standards”.