Estimated reading time: 6 minutes

The passage of the UK Electronic Trade Documents Act (ETDA) in 2023 was a significant milestone for the internationalisation and digitalisation of trade. The UK government has estimated that moving to the use of digital documents can accelerate the trade process from approximately 7 days to 10 minutes.

Moreover, the International Chamber of Commerce (ICC) UK has estimated that digitalisation of trade documentation could generate £25 billion in new economic growth by 2024, freeing up £224 billion in efficiency savings.

The ETDA therefore presents a revolutionary step for the international trade industry. Nevertheless, implementation and adoption will be complex. With the Act officially coming into force at the end of 2023, the industry must now adapt and respond to new challenges, as well as milestones, presented by the next phase of the regulatory process.

To discuss these aspects of the ETDA in detail and shed light on the digital trade transition for the industry, Paul Landless, Partner and Co-Head of the Technology Group, Clifford Chance, joined Deepesh Patel, Editorial Director, Trade Finance Global at the Trade and Investment Forum, organised by BCR in partnership with ITFA.

How the ETDA will impact global trade finance

8 months since the enactment of the ETDA marks a useful point of reflection on the process thus far, as well as the future outlook. Landless said, “The ETDA is amazing because I think it is probably the shortest piece of legislation, only three pages, but probably the most important piece of legislation that we have now in the UK statute books.”

The critical element is speed. The reduction in processing times frees up costs significantly. This will add greater efficiency gains, increase liquidity in terms of financing opportunities, as well as permitting the analysis and assessment of different types of credits and borrowers. 

Another positive element of the legislation concerns risk management and reduction. Digitalisation presents better risk management opportunities in terms of dealing with fraud, credit and ESG risks, and general compliance efforts. 

As the ETDA continues to be effectively used, the pricing of financing will improve for SMEs, therefore increasing access to financing for the wider market.

Key legal and regulatory technical hurdles for transitioning to electronic trade documents 

From a legal perspective, Landless predicts some forthcoming clarity and support in terms of the first relevant court judgements being handed down that demonstrate the legislation in action. Landless said, “At a domestic legal level, we will start to see a lot more clarity and support with judicial interpretation, but also judicial expertise and learning as well.” 

Even more importantly, at a global level, different jurisdictions need to continue attempting to follow and implement the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Transferable Records (MLETR). 

Landless said, “Will they start to recognise each other, almost as sister jurisdictions? Will we start to see interoperable frictionless trade from a legal perspective in terms of cross-border recognition?” 

However, reducing cross-border legal conflicts is not an easy task.

Landless said, “You can get quite a mix and match of different jurisdictions and legal regimes. I think it is going to be key to see over time [that] those different jurisdictions recognise each other cross border if they each followed the UN Model Law.”

Each jurisdiction currently has different standards for what constitutes a reliable system, leading to a disjointed international system. This has been seen as different jurisdictions started to implement MLETR into their domestic laws.

Real progress towards a digitalised industry requires different jurisdictions to converge and agree upon the definition of what a reliable system is. 

Landless said, “When we talk about interoperability, it is not only about legal interoperability in terms of cross-border, it is not only about platforms connecting; it is also about data flows and making sure there are not any breaks in those data flows cross-border is going to be key. I think different operational standards placed on differing banks by differing regulators is not going to help the adoption process over time.” 

The next steps for true digitalisation can come from the regulators. Once regulators encourage banks to use electronic trade documents, real progress could be made.

Landless predicts this will become an operational risk standard, with the expectation that for banks to be considered “best in class” and truly safe in terms of mitigation of operational risk, they will have to widely adopt electronic trade documents. This modernises processes, minimises risk in terms of fraud, and increases operational efficiency. 

Landless said, “I would not be surprised if you start to see certain banks hearing from regulators that it comes down to the safety and soundness of that bank, that having these types of paper-based or paper-related risks in the business is no longer acceptable.” 

If this happens, banks will increasingly be expected to make use of what is available in terms of cutting-edge technologies and platforms, supporting the growth of digital trade. 

Key takeaways and opportunities 

The digital transition presents real tangible opportunities for businesses, particularly smaller or mid-market traders. According to Landless, there are three important groups to note: people, products and processes.

Landless said, “Any attempt to think about onboarding with one trade finance platform or one electronic bill of lading (eBL) system has got to be done in tandem with those people worrying about payments, worrying about the treasury function, thinking about the IT side, and those worrying about compliance and risk management. 

“It is a collective effort, a cultural and organisational effort, and a relatively holistic total commitment to what is really a digital change initiative. It is a change management agenda that needs to be done across the organisation, involving different teams.”

Concerning products and platforms, Landless predicts a multitude of platforms coming online over time. A crucial question is whether and how they will link with one another. 

Landless said, “Each institution has to choose one or two platforms. Racing after multiple platforms is not going to help. You need to concentrate your efforts and energies around your due diligence around one of those platforms.” 

Internally, companies must examine existing processes and architecture – legacy IT resources and policies – and ensure they are ready for the transition.

The opportunity to capitalise on digitalisation is there, the imperative is now on the industry to act.