HKMA hatches fintech tool to boost trust in trade finance

Blockchain project aims to significantly raise standards around Hong Kong’s trade transactions – almost half of which fail to obtain financing

The Hong Kong Monetary Authority (HKMA) has tapped banking and auditing power to develop a blockchain tool with an ethical aim: to improve trust in the local trade finance system.

HKMA has built the proof-of-concept software in partnership with a heavyweight lineup of finance brands.

Its collaborators are Bank of China (Hong Kong) Ltd, The Bank of East Asia Ltd, Hang Seng Bank Ltd, HSBC, Standard Chartered Bank (Hong Kong) Ltd and Deloitte.

Their efforts have hatched a distributed ledger technology (DLT) platform that will serve as a common record between a variety of stakeholders – encompassing banks, buyers, sellers and logistics companies.

As the partners worked on the project, they explored the potential uses of DLT from numerous different angles, covering operations, governance and data security, plus a host of legal and regulatory requirements.

During tests, they demonstrated that the tool successfully harnessed DLT to digitise a series of paper-intensive processes through smart contracts: a method that will reduce the risk of fraudulent trade and duplicate financing.

The partners hope that, as a side effect of improving transparency in trade finance, the tool will stimulate new product innovation across the industry as a whole – bolstering Hong Kong’s role as a major trade finance hub.

Deloitte China partner Paul Sin pointed out that the tool has arisen out of urgent necessity, saying: “Nearly half of the trade transactions in Hong Kong fail to obtain financing, due to the lack of trust and potential fraudulent loss.

“We are glad that HKMA and the leading banks in Hong Kong are driving the use of DLT to infuse transparency and trust into the ecosystem – not to mention the potential productivity gain in the currently labour-intensive process.”

He added: “With great vision and determination, Hong Kong is well positioned to lead the region on trade finance DLT application.”

Gautam Jain – global head, digitisation and client access in the Standard Chartered transaction-banking arm – noted: “We see significant potential in the application of smart contracts in trade finance, and will continue to work with industry partners and regulators to make this a reality in the near future.”

HKMA executive director Li Shu-pui said: “We are very pleased to see this industry-led fintech effort on trade finance. The proof-of-concept result has shown the potential of using DLT for trade finance though there are still a number of matters such as legal, regulatory and governance issues which need further consideration.

“We will continue to work with the banking industry to explore the possibility to materialise the value proposition of this proof-of-concept work.”

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