dltledgers Launches Trade Finance Registry with Singapore Banks

Leading Singaporean banks are rallying together to solve the issue of duplicate financing fraud that amasses to a few billion dollars each year. The move is highly encouraged and supported by government bodies including Enterprise Singapore, Monetary Authority of Singapore and The Association of Banks Singapore amongst others. The lack of standardised due diligence procedures has always been a challenge for the banking industry but this working group, led by Standard Chartered Bank and DBS Bank, is paving the way for increased transparency in trade finance in Singapore, and possibly across Southeast Asia in the near future. 

The joint bank-driven effort follows on the heels of the infamous Hin Leong, ZenRock, Agritrade and Hontop Energy trade finance frauds, which occurred in the first few months of 2020, amounting to a whopping $4.8 billion. The ICC’s International Maritime Bureau (IMB) has already warned against pre-financing fraud, whereby false shipping documents are provided to unlock funds before goods are actually shipped. But the lack of transparency in the trading system means banks are unable to determine whether commodities backing a loan are actually available or being pledged to multiple lenders. Add to that the absence of a central repository containing such collateral, and it’s no wonder that trade finance fraud is so prevalent. 

Banks have now sought to invoke tighter controls, increase transparency, and adopt new technology to avoid losses in this business.  Under the leadership of Standard Chartered Bank and DBS Bank,  this group has pioneered an industry-wide solution using blockchain technology, which has been named  the Trade Finance Registry. The initiative involves ABN Amro Bank, Lloyds Bank, ANZ Bank, ICICI Bank, OCBC Bank, Natixis Bank, UOB Bank, Deutsche Bank, CIMB, and Rabobank, although as the project gains momentum others are waiting to be included. At the heart of this collaboration is the ability for each bank to validate whether or not another financial institution has already submitted a particular title instrument for financing purposes. Underpinned by blockchain, it is possible to share this data such that it does not violate client confidentiality and compliance rules, while still reducing the risk to the finance provider.

 Trade Finance Registry runs on the #dltledgers blockchain platform, created by Singapore-based blockchain company Distributed Ledger Technologies. It is based on a governance rule book established by the bank-led working group, and allows for real-time matching of title documents including Bills of Lading (BL), Letters of Indemnity (LOI), and Charter Party Bills of Lading (CPBL). Technically speaking, the system works by comparing encrypted data points across multiple blockchain nodes using a query-based, runtime search algorithm.  In other words, data can be matched across each bank’s ledger, without ever leaving their location. Whenever there is a match, the relevant parties will be alerted. 

TFR is the first solution of its kind to counter double financing within trade. Thanks to the unique nature of blockchain, unconnected parties will be able to compare the details of their trade finance deals with one another, gaining advance warning of potentially fraudulent financing requests without sharing sensitive data with one another. Developed on Hyperledger Fabric and hosted in Microsoft’s cloud service, Azure, the platform can detect fraud in parallel financing, sequential financing, and a number of related scenarios. 

The TFR solution is intended to benefit all financial institutions and the entire trade ecosystem in and around Singapore. It has been developed with the co-operation of Enterprise Singapore and is endorsed by The Association of Singapore Banks (ABS). This is the first time a regulator has been able to unify trade finance processes in this way, and opens the door to the policing of nefarious activities, and the identification of bad actors.