The Bankers Association for Finance and Trade (Baft) has released technical and business best practices for the digital ledger payment commitment (DLPC).
The documents outline industry-wide specifications for a DLPC, helping to enable the digitisation of trade finance instruments for processing on a blockchain platform and facilitate interoperability among platforms.
The best practices were developed by Baft’s digital ledger payment commitment working group, which was formed in 2016 at the direction of Baft’s innovation council. The working group consists of representatives from 15 large global banks, business consultant firms, law firms, trade finance solution providers and fintech companies.
The industry has been calling for standards for some time. As far back as Sibos 2017, Daniel Schmand, chair of the ICC’s banking commission, cautioned that “a lack of digital standards and rules mean that we are living in an era where we have more technology solutions for trade than we are able to use”.
Speaking to GTR, Samantha Pelosi, senior vice-president of payment and innovation at Baft, explains: “The technical and business best practices set out standardised information and processes necessary for the creation, negotiation, and discharge of a distributed ledger payment commitment, or DLPC. These standards should enable a DLPC to work on any distributed ledger technology (DLT) platform for trade finance. The DLPC can be incorporated on a wholesale basis into and be compatible with the technical or rules framework of any platform. The DLPC is just one discrete component of a trade transaction, but it is a critical component – it embodies the financing.”
She adds that the leaders of the DLPC working group were very deliberate in reaching out to parties developing major blockchain platforms to ensure that the technical and business practices would facilitate interoperability.
Technical best practices working group member David Sutter, head of platform strategy at TradeIX, which is part of the group behind the Marco Polo blockchain trade finance project, explains that the DLPC can be thought of in some ways as a URBPO (uniform rules for bank payment obligations) for the blockchain-based trade finance environment.
“There are similarities but there are some differences. As of now, the DLPC is more technology focused, whereas URBPO is more legally focused. I do see the two as synergistic and believe the DLPC will contribute to the creation of a new ICC-endorsed rulebook for payment commitments, both distributed ledger-based and non-distributed ledger-based,” he says.
Baft believes that the DLPC component should be an industry standard and a legally enforceable means to realise electronic negotiable instruments. “It is a building block for instruments like drafts, bills of exchange, letters of credit, bank payment obligations and banker’s acceptances,” says Pelosi.
So far, though, the best practices remain a work in progress. To garner feedback from the industry, Baft has posted them on its website, where it expects to receive comments on any gaps or barriers that it may have overlooked. “We hope to make any needed adjustments to the best practices and finalise the documents within approximately six months,” says Pelosi.