Original post by Karry Lai, International Financial Law Review
Blockchain startup DLTLedgers and the banks involved in the project share insights on the challenges encountered in creating the proof of concept.
The Monetary Authority of Singapore (MAS), together with 14 banks in the country, has created a digital trade finance registry using blockchain startup DLTLedgers to reduce the risk of trade fraud and increase transparency. Those involved with the registry said that despite tight timeframes and silos in information sharing, strong collaboration between multiple banks helped to drive the project forward.
Samir Neji, CEO at DLTLedgers, said that the startup’s TradeDoc central bank platform was developed with leadership from MAS, DBS, Standard Chartered Bank, with sponsorship from Enterprise Singapore.
Sam Mathew, global head of documentary trade at Standard Chartered, said that the project is innovative as it is based on distributed ledger infrastructure, and together with an advanced algorithm, it demonstrated the ability to identify attempts at duplicate financing, while preserving data confidentiality in the proof of concept.
He added: “It was also a case of true co-creation, with 14 banks employing an agile sprint approach in both the design and testing phases.”
This is the first time that a registry has been created to pool information from banks, independent of a transaction’s originating channel.
Ho Hern Shin, assistant managing director in banking and insurance at MAS, said: “A digital trade registry strengthens trade financing banks’ ability to avoid duplicate financing, and facilitates more sustained credit flow in trade financing.”
So Lay Hua, head of group transaction banking at United Overseas Bank, said: “ The new trade nance registry provides an opportunity for all lenders to work together and to overcome the industry-wide issues of fraud and duplicate financing more eﬀectively. UOB firmly believes that the concerted and collective eﬀort taken by Singapore’s banking industry will improve transparency, reduce risk, and strengthen Singapore’s reputation as a leading trade and finance hub.”
Mathew added that in its current phase, the digital registry detects attempts at duplicate financing, which is defined as using the same set of valid documents or cargo to obtain trade financing multiple times from diﬀerent banks. This is done by solving the existing asymmetry of information between banks and lenders financing the same transaction.
“Future phases may include additional capabilities such as shipment validation, tracking, contract provenance, and collateral mapping,” he said.
Mathew said that one challenge was around scope. “While all the banks involved were aligned, it was important to keep scope and data-sharing to the minimum to ensure the proof of concept and the minimum viable product thereafter is operationally feasible,” he said.
The group of banks involved also had to scope, build, and complete the proof of concept in a much shorter timeframe compared to a typical consortium project that could easily take years.
“We set up weekly sessions and spent quality time during the scoping stage,” said Mathew. “Once this was finalized, the #dltledgers team quickly built the proof of concept, and together with all the banks, we co-created multi-bank test plans.”
He continued: “We managed to bring the proof of concept from an initial idea to full completion in three months involving more than 10 banks, which is remarkable in my view.”
Neji added that more than 96 trade nance experts participated in the project to bring the trade finance registry to life.
“Because these were new waters that no one had tested before, coordination with the multiple participants from numerous organisations in diﬀerent teams, including digital, front oﬃce, middle oﬃce, trade nance product, and commodity teams, all located in diﬀerent time zones, was a challenge,” said Neji.
Another issue was the collaborative testing approach. “Usually banks work in silos, withholding internal data and documents but in this project, every bank stepped out of its comfort zone,” said Neji. “Most crossed these boundaries for the first time, and it was a challenge to navigate these set processes – but the brilliant leadership made our job easier.”
Looking ahead, Mathew said that the ongoing challenge will be to commence the pilot project with live data as soon as possible, which would require harmonising all internal assessments of the banks involved.
“The interface between the banks involved and the registry needs to be digital, perhaps using application programming interfaces, to avoid manual input,” said Mathew. The commercial model for the ongoing operation of the registry as a utility will also be fleshed out under the governance of the Association of Banks in Singapore.
Mathew added that regulatory support is important for an industry initiative of this nature. “Regulatory support will help to scale this up quickly, which would mean that more banks can join the community and enjoy the greater transparency and trust the initiative oﬀers,” he said.
Neji said that Singapore is leading the charge in the region, and initial discussions on similar projects are also ongoing in the UK, Dubai, Qatar, Hong Kong SAR, India, Thailand, and India. “We are involved in some of those discussions, as trade is global and we have the advantage of being interconnected with our distributed ledger platform,” said Neji. “Our aim is to create a global trade finance registry – that is the ideal end state.”