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.
“A digital trade registry strengthens trade financing banks’ ability to avoid duplicate financing, and facilitates more sustained credit flow in trade financing,” said Ho Hern Shin, an assistant managing director at the Monetary Authority of Singapore. To plug the information gap, data residing within each bank needed to be shared without creating compliance problems or circumventing data protection laws. The level of encryption provided by Trade Finance Registry means that we can gain data-led insights, which enable us to monitor activity and protect the industry against wrongdoers. This solution has the potential to save Singapore lenders billions of dollars and further cement the country’s favorable position in global trade relations.
“Since Singapore is home to a very large and diversified group of commodity companies, Trade Finance Registry will create a transparent and efficient trade financing landscape,
reducing risk immensely in the sector”, stated Satvinder Singh, Assistant Chief Executive Officer at International Enterprise Singapore. “This initiative will strengthen Singapore’sattractiveness as a commodities trading hub and help set standards for the region.”
Ms So Lay Hua, Head of Group Transaction Banking, Group Wholesale Banking, UOB, said, “UOB is pleased to be a key contributor to the industry effort to help mitigate risks in the trade financing. The new Trade Finance Registry, tapping on blockchain technology, provides an opportunity for all lenders to work together and to overcome the industry issue of fraud and duplicate financing more effectively. UOB firmly believes that the concerted and collective effort taken by Singapore’s banking industry will improve transparency, reduce risk and strengthen Singapore’s reputation as a leading trade and finance hub.”Samir Neji, CEO at dltledgers stated, at #dltledgers we are delighted that our blockchain-based TradeDoc Validation Registry has been deployed here in Singapore. We are proud to be part of the collaborative finance community, and to work with ABS to detect fraud in real time. We will continue to support Singapore’s commitment to fintech innovation, to provide liquidity for local businesses, and to fight fraud. We’re also excited to see the technology expand into other nations, as we work towards wiping out duplicate financing globally.