BAFT (Bankers Association for Finance and Trade), Shearman & Sterling, and R3 have released a technical paper, ‘Code Is Not Law: The Legal Background for Trade Finance Using Blockchain’, which examines the paths to securing legal recognition for “electronic negotiable instruments.”
To view the document click here.
„Despite general recognition that blockchain technology promises to be the basis for major improvements in the efficiency of trade financing, the absence of U.S. regulations and laws applicable to “electronic negotiable instruments” is an obstacle to the deployment of blockchain technology.”, according to the press release.
Most notably, while it has become technologically possible to execute transactions using negotiable instruments registered via blockchain technology, existing U.S. law recognizes negotiable instruments only if they are on paper and signed, which hinders the advancement of blockchain-based trade finance.
The paper outlines three paths to overcoming this challenge, including:
. Revise UCC Article 3 by amending its definitions so that Article 3 would cover electronic promissory notes and bills of exchange.
. Extend and amend the Uniform Electronic Transactions Act (UETA) to cover and provide for electronic promissory notes, as well as electronic bills of exchange.
. Create a rulebook that would be subscribed to by users of electronic negotiable instruments and that would fill in gaps in existing law. The rulebook would require electronic promissory notes and bills of exchange to be registered on a permissioned blockchain not accessible by the general public, where each transacting party would be bound by the rulebook.
While the ideal, long-term, solution would be to amend UCC Article 3, such amendment could take years to be prepared and enacted. In the interim, a viable solution is the creation of a rulebook that applies existing law to electronic instruments.
About BAFT
BAFT is an international financial services trade association whose membership includes banks in approximately 60 countries around the world, financial services providers, as well as a growing number of non-bank and financial technology companies.
In January 2016, BAFT established an Innovation Council which brought together financial institutions and financial technology companies to provide awareness, education, and guidance with regard to emerging technology impacting the transaction banking industry. www.baft.org.
About Shearman & Sterling
Shearman & Sterling is a global law firm with approximately 900 lawyers in 22 offices around the world. The firm partners with corporations, major financial institutions, emerging growth companies, governments and state-owned enterprises, to do financial and other transactions and to provide the legal advice and industry insight needed to navigate the challenges of today and achieve their future ambitions.
Shearman & Sterling’s FinTech Foundry program advises Financial Institutions and FinTech innovators shaping the future of financial services by providing legal advice to help them better understand, address and prepare for legal and regulatory challenges across the industry.
About R3
R3 is an enterprise blockchain software firm working with a broad ecosystem of more than 200 members and partners across multiple industries from both the private and public sectors to develop on Corda, its open-source blockchain platform, and Corda Enterprise, a commercial version of Corda for enterprise usage.
R3’s global team of over 180 professionals in 13 countries is supported by over 2,000 technology, financial, and legal experts drawn from its global member base. R3 is backed by investment of over USD 120 million from more than 45 firms.
The Corda platform is already being used in industries from financial services to healthcare, shipping, insurance and more. It records, manages and executes institutions’ financial agreements in perfect synchrony with their peers, creating a world of frictionless commerce. www.r3.com.
Banking 4.0 – „how was the experience for you”
„So many people are coming here to Bucharest, people that I see and interact on linkedin and now I get the change to meet them in person. It was like being to the Football World Cup but this was the World Cup on linkedin in payments and open banking.”
Many more interesting quotes in the video below:
