Swift is trialling a new trade finance fraud prevention solution that will enable financial institutions to check for duplications of documents, from invoices to bills of lading, warehouse receipts and purchase orders, before deciding to finance them, GTR can reveal.

The proof-of-concept initiative, which is now underway, brings fintech company MonetaGo’s Secure Financing platform onto Swift’s API-enabled infrastructure, which Louise Taylor-Digby, Swift’s global head of trade strategy, says will provide its community of financial institutions with an “important tool to combat financing fraud at the international level”.

“Finance fraud in cross-border trade cannot be fully mitigated with local registries, so it makes perfect sense to leverage Swift’s global reach to help institutions around the world to solve this problem,” she says. “By bringing global API standards, identity and security, Swift can help to mitigate against the growing challenge of digital islands.”

MonetaGo’s solution has been in full production since 2018. On the platform, lenders register select document information, prior to disbursement, to the network. Key information from each document is hashed to create digital fingerprints that guarantee privacy. These fingerprints are then pushed to the network, which acts as a secure unified data repository shared across all participants. If the same document is submitted to the network by multiple lenders, the system will reject or flag all duplicates after the first unique instance is marked as financed on the system.

So far, the company says it has processed over 1.8 million financings, via a series of partnerships.

In a 2018 project, the company joined forces with Swift in India to enable a group of local banks to leverage the Swift messaging infrastructure to pass messages back and forth to MonetaGo’s blockchain, in order to cross-reference an invoice before committing to financing it.

The firm has also brought its platform into the ecosystem of Singapore-based trade technology platform GUUD, which provides trade finance connectivity and digitised workflow capabilities for Singapore’s Networked Trade Platform (NTP) and Singapore Customs and includes vCargo Cloud’s CamelONE trade finance platform, which was launched on the NTP in November 2019 with the backing of nine banks.

Meanwhile, last year, MonetaGo received a grant from the Monetary Authority of Singapore (MAS) to run a proof of concept with 25 organisations to detect and prevent instances of duplicate financing. The trial was conducted over a six-month period and concluded on June 30 with positive results and feedback.

“Duplicate financing occurs for many reasons. A unified solution used by lenders to combat this type of financing fraud in international trade is the most effective way to help resolve this problem. The MonetaGo Secure Financing Platform appears to be a simple utility that lenders worldwide could potentially use to greatly improve the trade finance experience,” says Mark Borton, head of trade and working capital finance product at National Australia Bank, which participated in the MAS pilot alongside other banks including Lloyds Bank and SMBC.

“MonetaGo’s Secure Financing solution can mitigate fraud not only for bank financiers but alternative lenders also; this is exactly what the trade finance ecosystem needs,” says Tom James, CEO and founder of TradeFlow, which also took part in the MAS pilot. “For too long, financiers of all types lacked the ability to communicate effectively and efficiently to prevent duplicate financing fraud, and it’s exciting to see this innovative fintech pioneering the way ensuring confidence can be upheld globally in trade fraud mitigation.’’

Participants in the Swift pilot have not been revealed, but if it proves a success MonetaGo says that the over 11,000 Swift-connected institutions will be given easy and secure access to its finance validation service in a “trusted and globally standardised way.”

This development comes on the heels of a strongly worded missive from the UK’s top two banking regulators to CEOs across the trade finance sector, warning that more needs to be done to identify fraud and assess credit risk.

In a letter addressed to the heads of all trade finance firms in the UK, the Financial Conduct Authority (FCA) and the Bank of England’s Prudential Regulation Authority (PRA) warn that “recent assessments of individual firms have highlighted several significant issues relating to both credit risk analysis and financial crime controls”.

One challenge for banks is sharing information on transactions and borrowers, which MonetaGo’s registry solves for through the use of cryptographic hashing – it does not store actual customer or transaction data, and the digital fingerprints it creates cannot be reversed-engineered to reveal the data that created them.

“Information silos between lenders result in duplicate financing fraud as they often have little insight into whether the client has submitted transactions for financing to other lenders. The integrity of the entire trade finance landscape is vital for the flow of trade finance, and that’s why we were excited to participate in testing of the platform with MonetaGo,” says Ed Aldorino, head of GTB Asia at Lloyds Bank. “The easy-to-understand platform enables us to prevent double financing fraud around the world in ways which were not possible before and we look forward to the impact it will have on the markets we serve.”

In a statement, MonetaGo says: “Ultimately, those that stand the most to benefit are not only banks and lenders, but trade finance end users and customers. To mitigate the risk of loss due to trade finance fraud and to manage operational costs, financiers globally have been offboarding clients, resulting in trade finance needs not being met. Almost half of all small to medium enterprises are unable to access appropriate financing. This problem also affects mid to large cap corporations as well as multinational companies who all are facing significant liquidity challenges in many different sectors.”

MonetaGo says that this new link-up with Swift represents “the next natural step” in the evolution of its solution, providing connectivity on an international level and leveraging the Swift API channel for standardisation and distribution in order to expand its reach and effectiveness.

The company has launched its Secure Financing platform into full deployment, and is targeting banks and traditional financiers as well as non-bank financial institutions, fintechs and trade finance funds for onboarding.