The International Chamber of Commerce’s (ICC) Banking Commission has launched a working group that will coordinate all work relating to accelerating digitalization of the trade finance industry.
The formation of the working group comes at a time when the trade finance industry is “undergoing a massive transformation—from time-consuming and cumbersome manual processes involving paper-based instruments such as Letters of Credit to an automated and digitized future,” ICC said in a statement.
In line with its 2020 strategy, the ICC Banking Commission launched the “Digitalization of Trade Finance Working Group,” which is tasked to identify strategies to overcome the constraints of digitalizing trade finance.
These hurdles include a reliance on paper-based practices, a lack of recognition of the legal status of electronic documents, uncertainty over standards, and a general lack of clear legal and regulatory frameworks.
The group will also be the focal point for relevant external parties such as the international transaction banking association BAFT, the World Trade Organization , and the World Customs Organization.
“The digitalization of the trade finance industry is already underway,” said Michael Vrontamitis, chair of the working group.
“In order to help the industry to reach a point of critical mass, where the benefits are fully realized, we need to develop a framework and create a digital ecosystem to enable connectivity and collaboration between stakeholders, in turn speeding up wider adoption.”
A key focus for the working group’s activities will be in helping the trade finance industry realize the many benefits of digitalization—including transparency, time and cost savings, reduced errors, and reduced compliance and operational risk.
The working group’s core activities are threefold. One area of activity will focus on achieving “e-compability” of ICC rules for trade finance.
To do this, the group will evaluate ICC rules, such as the Uniform Customs and Practice for Documentary Credits, in order to assess e-compatibility and ensure rules are “e-compliant.” This will enable banks to accept data rather than documents.
Another group activity will focus on standardization. “In order to remove uncertainty in the industry and accelerate the uptake of digitalization, the group will develop a set of minimum standards for the digital connectivity of service providers—particularly across legal, liability, information security and technology,” said ICC.
The third core activity centers on legality, in which the group will examine the legal and practical issues related to the validity and value of data and documents in digitized form. For instance, it will conduct a legal survey to understand how the rights of third parties compare under paper and electronic Bills of Lading (eB/Ls).
Olivier Paul, head of policy at the ICC Banking Commission, said: “The group’s focus is simple—to improve awareness of digitalization and to encourage banks and other corporate actors to participate in the transformation of the industry.”
He said digitalization can bring about significant operational improvements, such as working capital benefits and reduced time and costs for the trade finance business, with significant wider economic benefits.
“Yet e-compatibility and minimum standards are critical, as is legal certainty. This group will thus play a pivotal role in delivering a digital future for trade finance,” he continued.
The ICC Banking Commission is a leading global rule-making body for the banking industry, producing universally accepted rules and guidelines for international banking practice.
Photo: Adrian Berg
