FQX, a Swiss-based fintech focused on electronic negotiable instruments, has raised US$4.7mn in a seed funding round, which it will use to expand into new markets where tabled legislative changes look set to boost the adoption of digital trade documents.

FQX’s eNote, which went live in February, is an electronic version of the promissory note – a negotiable instrument that enables companies and individuals to obtain finance based on an unconditional promise to pay.

The fintech carried out its first trial of the eNote in September last year, issuing an eNote to one of its suppliers, Axelra, which allowed it to obtain financing from Sygnum, a Swiss digital asset bank, to liquidate the trade receivable it held against FQX. The eNote was assigned an ISIN number – a standard securities identification number code which enables the transfer of a security to other investors – and was registered and stored on a distributed ledger maintained by Swisscom.

Currently, FQX’s eNotes are based on Delaware law, specifically the Uniform Electronic Transactions Act, which states that “a record or signature may not be denied legal effect or enforceability solely because it is in electronic form”. According to FQX, the enforcement regime applicable to eNotes is recognised in over 165 countries.

The company says it intends to use the new funding, which comes from Earlybird Venture Capital, Six Fintech Ventures, and tech investor Carsten Thoma, to set up hubs in the UK and the Asia Pacific region, where governments are enacting or initiating legislation that makes electronic instruments equivalent to their paper-based counterparts.

“We started by using Delaware law simply because it is already possible and proven to work from a legal perspective,” Benedikt Schuppli, FQX’s co-founder and CEO, tells GTR. “As we see more and more countries around the world establishing their own legal frameworks, our aim is to provide them with the ability to issue eNotes using their own frameworks because at the end of the day that is what people still feel most comfortable with.”

Moves to grant legal standing to electronic trade documents such as promissory notes are well underway around the world. In February, Singapore became the second country to adopt the UNCITRAL Model Law on Electronic Transferable Records (MLETR) into domestic legislation, while a new commitment made by G7 digital and technology ministers to digitise trade documents was swiftly followed by a proposed legislative reform in the UK.

“The eNote technology infrastructure we envisaged two years ago is now uniquely positioned to transform trade finance and money markets,” says Frank Wendt, FQX’s chairman and co-founder. “This funding enables us to scale our transaction volumes over the years to come.”

Speaking to GTR last month, Chris Southworth, secretary general of the ICC’s UK chapter, said that the international legal framework for global trade is likely to change quickly, with technology providers who are already in the market standing to gain from the removal of legal barriers to paperless trade.

“We are all aware of the fact that once the UK passes the revision of the Bill of Exchange Act 1882, it may very well have an excellent chance to become a standard legal framework under which electronic bills of change and electronic promissory notes will be traded,” says Schuppli. “As soon as the space matures and new legislations emerge, our goal is to build an infrastructure where someone in the UK can issue an eNote based on English law, and someone in Singapore can base it on Singapore law, and we will just be the middle layer between them.”