Deloitte, HKMA and leading trade finance banks in Hong Kong have developed a Distributed Ledger Technology proof of concept for Trade Finance

Published: 30 March 2017

Deloitte has been working with the Hong Kong Monetary Authority (“HKMA”) and the leading trade finance banks in Hong Kong to develop a Distributed Ledger Technology (“DLT”) proof of concept for Trade Finance. Industry participants include: Bank of China (Hong Kong) Limited, The Bank of East Asia, Limited, Hang Seng Bank Limited, the Hongkong and Shanghai Banking Corporation Limited (“HSBC”) and Standard Chartered Bank (Hong Kong) Limited.

The project, focusing on Trade Finance has resulted in the design and development of a proof of concept leveraging DLT to create a platform for banks, buyers and sellers, and logistics companies. Moreover this proof of concept has demonstrated the application of DLT in digitizing paper-intensive processes through smart contracts, reducing the risk of fraudulent trade and duplicate financing, and improving the transparency and new product innovation of the industry as a whole, strengthening Hong Kong as a major trade finance hub. This project has also explored the implications of DLT from the dimension of operations, legal, regulatory, governance and data security.

Commenting on the announcement, Executive Director of the HKMA, 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 Distributed Ledger Technology 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. ”

Robert Rooks, FSI Clients and Markets Leader at Deloitte China commented: “We are delighted to have worked with HKMA and the Working Group members in demonstrating the value of Distributed Ledger Technology (also known as ‘blockchain’) in trade finance. Distributed Ledger Technology has huge potential in financial services to reduce the cost and improve transparency and efficiency. This is an important step in bringing this to reality.”

Gautam Jain, Global Head, Digitisation and Client Access, Transaction Banking, Standard Chartered, said: “At Standard Chartered, we firmly believe that we can leverage DLT to transform today’s Trade Finance solutions, and deliver improved efficiency and greater transparency to our clients and their ecosystems. This is why we are very excited to be working with HKMA to complete this DLT Smart Contract prototype for Open Account Trade Financing. 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.”

Joshua Kroeker, Senior Product Manager for Global Trade and Receivables Finance, HSBC said: “This development puts Hong Kong at the heart of a global effort to digitize trade, making it easier, faster and cheaper for businesses. At HSBC we’re working with distributed ledger technology because we believe it has huge potential as a catalyst for change, and we’re excited to be innovating here in our home market.”

“Nearly half of the trade transactions in Hong Kong fail to obtain financing due to the lack of trust and potential fraudulent loss,” said Paul Sin, a partner with Deloitte China who leads the FinTech practice. “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. With great vision and determination, Hong Kong is well positioned to lead the region on trade finance DLT application. ”

Deloitte’s blockchain team – comprised of more than 800 professionals across 20 countries – works with international organizations looking to roll out blockchain-enabled solutions. Deloitte has developed more than 30 blockchain-related prototypes, covering a multitude of uses such as digital identity, digital banking, cross-border payments, trade finance, and loyalty and rewards solutions, as well as distinct efforts for the investment management and insurance sectors.