Industry Perspectives: Reliable systems – are they really something new?

Published: January 10, 2024
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This article is published by GTR, author Jacob Atkins

The UK Electronic Trade Documents Act (ETDA) has been hailed as a catalyst for the digitisation of global trade because the bulk of trade transactions are carried out under English law. The Act calls for a “reliable system” to effectively govern electronic documents and ensure they can be trusted as assets. But the law leaves the term undefined. In this Industry Perspective, Patrik Zekkar, CEO of Swedish trade fintech Enigio, says that while that has created some uncertainty, the shift to paperless trade finance doesn’t need to be complicated.

GTR: Has the lack of a clear definition for “reliable systems” in the ETDA led to uncertainty in the market?

Zekkar: I think it’s created uncertainty and some confusion, in terms of both what it means but also how to act on it. This is because the term is in the Act, but it doesn’t give clear instructions.

The Act is very clear that we are now entering into a new interface between technology and traditional trade, but maintains the strong link to paper documents by recognising specifically that only trade documents “…designed to replicate the salient features of a paper document are deemed possessable under the Act”. What we need to deliver through a reliable system is obvious from the law: the functional requirements for our solution to act and behave like a paper document and ensure singularity, absolute control and transferability.

I think the confusion comes when working out how to validate that. How do you ensure that you really manifest the requirements? That’s where I think the industry is splitting, with old meeting new. The Act says you need to have secure hardware and software and recommends third-party reviews, but that is fairly standard for technology operations.

People are finding it confusing because we’re entering into a new space, and new problems and processes are emerging that cannot be solved by the old methods alone. We need to use a combination of new and old methods.

GTR: The International Chamber of Commerce (ICC) is working on standards for reliable systems. Do you expect these will become the global benchmark?

Zekkar: I think it’s a little bit too early to see how this plays out. The ICC has a history of being able to deal with discrepancies and sort out issues in the market in an aligned way, but might the different chambers within the ICC approach these standards differently? There’s a risk they could do, in which case it could be quite complex and costly to adhere to varying standards in different geographies. The second issue is, if other industry bodies, in transport and logistics, for example, also start producing standards, we would deviate again and go into the same discussions we have had in relation to creating standards for structured data, and which required us as a tech provider to build a standard agnostic solution.

But I hope that it will create a harmonised and mature view of reliable systems, though some kind of acknowledgement of them will be necessary for trust in the market. If someone goes wrong and creates a system that does not hold water, there will be a significant impact on all of us. It’s in our interest to find a way to get everyone comfortable and secure so that no such system is released to the market.

GTR: Do you think there will be hesitancy to go fully paperless until there are additional pieces of UK legislation or court decisions to flesh out the meaning of reliable systems and other aspects of the ETDA?

Zekkar: This is quite a complex topic because it’s not only about reliable systems but also cross-border recognition of ETDA. My firm belief is that there will be more court cases and people will recognise that the courts will uphold trade infrastructure. When going paperless, it’s also about changing the value format of the actual assets, which are often high-value assets. This shift is having a systematic impact on the industry and the ecosystem, so I think we must have respect for that.

On a practical level, there are processes and a track record for handling assets on paper. But when changing, not only in trade but in other areas as well, those assets won’t exist on paper anymore and will instead only live in a system. The question is how to manage and deliver those assets in a prudent, secure and efficient way. That’s also part of being comfortable. I’m not sure a UK legislator should intervene right now, as market evolution is progressing well.

I think the first movers in this era will be the parties with the resources and competence to carry out assessments themselves. A company can go to a bank and say they are certified by the ICC, but it’s very likely that the bank will want to do its own assessment on whether something constitutes a reliable system. Those parties will play a very important role in this digital transition and in ensuring industry security.


GTR: Can financial institutions and corporates already carry out transactions in compliance with the Act? How long do you think it will take before this becomes the norm?

Zekkar: You can carry out transactions in compliance with the ETDA already, that’s proven. Lloyds Bank did the world’s first transaction on the morning the law was adopted. The next and ongoing steps are to increase the complexity of transactions using electronic trade documents by going from a two-party model to a four-party model and so on. We are currently working on a proof of concept for a nine-party model. The business case is very large, but starting with a two-party model is good because it allows for full oversight of the transaction and limits risk. Then you can gradually expand the complexity and thereby increase your business benefits. I think a step-by-step approach is wise, particularly because there are big organisations that need to be comfortable with all aspects of the structure.

In terms of how long it will take before this becomes the norm, this is the big question. Some products, industries, commodities or countries are in greater need of this reform than others, so I think we will see a somewhat split pace in adoption, depending on how urgently the benefits are required.

Products that change hands quickly on the water with rapid transactions are candidates for early adoption of electronic trade documents, as are those in ports or trade corridors with high fraud risk.

GTR: What did you learn from that first transaction with Lloyds following the ETDA coming into force?

Zekkar: We have done several transactions now, so if we look on a consolidated basis, it works well. The business case delivers, along with the time saving, the cost base and the improved process. I think what we are learning on a day-to-day basis is how to enhance customer experience. It’s a continuous journey in improving the efficiency and user experience and making it self-explanatory. We have an open system solution, meaning it is not a platform that requires onboarding and similar processes to manage documents. Therefore, it is important that the system is very user-friendly and self-explanatory for ease of use. That is something we are continuously developing. Once a party has tried the system and understands it, they can then start thinking about what else they could do with the same system-agnostic solution.




Link to the UK Electronic Trade Documents Act checklist including useful questions and considerations