The International Trade & Forfaiting Association (ITFA) has revealed its digital negotiable instruments (DNI) initiative to digitise trade documents. However, the global industry body has hit legal stumbling blocks in being able to implement its work, and is now calling for lawmakers to act.
Digital versions of negotiable instruments such as promissory notes and bills of exchange are not valid under English law. As such, ITFA has lobbied the UK government and is working with the Law Commission and ICC UK to change this.
“These negotiable instruments, bills of exchange and promissory notes, were once the standard stock in trade. The reason being is that they are quite widely used. The laws differ, but most relatively developed countries have some form of negotiable instrument and that’s largely because of colonial era laws,” ITFA’s chair Sean Edwards tells GTR.
He says that paper negotiable instruments are cumbersome to operate, and that digital versions are a necessary update. “If we’re successful, what that would mean is that the English law, which is this 1882 statute, would be changed, so that it recognises a bill of exchange or a promissory note in digital form,” he explains.
The need for digital documents has been made more apparent by the Covid-19 pandemic, as trade papers struggle to reach their destination and hit piles of backlog.
As a temporary practical solution amid the pandemic, ITFA, along with law firm Sullivan, has created digital equivalents of the bill of exchange and promissory note, which operate under the English Bills of Exchange Act. Edwards says: “For the here and now we’ve come up with the ePU, the electronic payment undertaking.”
The electronic payment undertaking (ePU) is a key step towards achieving the goal in mind, says ITFA. The product delivers an independent payment undertaking that fulfils the requirements of a traditional negotiable instrument subject to contract law rather than common law. It is being supplied by various vendors, including Swedish blockchain company Enigio Time and Wave, an Israeli fintech firm.
Edwards adds that: “Once this takes off, they [tech companies] can provide their own version of the ePU. Or when the law is changed, traders will just need to get something which essentially is like a modern-day negotiable instrument but is entirely digital.”
Having had discussions with tech companies, including R3 and TradeIX – the firms behind the Marco Polo blockchain platform – Edwards says these measures can easily be implemented from a technology perspective.
Elsewhere, the ICC has also urged governments to lift legal barriers on the use of electronic trade documentation, such as bills of lading, bills of exchange, promissory notes and commercial invoices.
In an open letter to UK secretary of state for justice Robert Buckland, secretary general of the ICC’s UK chapter, Chris Southworth requests a reform of two pieces of legislation in order to enable digital trade for at least as long as the pandemic continues.
The letter, dated April 8, says that the removal of legal requirements for physical signatures on bills of exchange and promissory notes should be fast tracked. “We believe this could be achieved through Parliament with minimal disruption using secondary legislation and the Electronic Communications Act 2000,” it reads.
Edwards adds: “There is a lot of interest in changing the law. They [lawmakers] probably are minded to move a bit more quickly than they do normally. But a bit more quickly means a year- plus, and we don’t want to hang around.”