A few days ago I had the pleasure of chatting with Professor Alistair Milne and several of his colleagues from the Loughborough School of Business and Economics. among our topics was the Electronic Trade Documents Bill, which should pass into UK law within the next couple of months. It represents a major re-definition of documentation in that qualifying electronic documents will take on the same status as physical.
Creating an authoritative status for digital documents is not as easy as it sounds. Current compliance practice requires the possession of defined documentation. Okay so far, but under current UK law, only tangible assets can be possessed. As a pattern of ones and zeros in a storage system, a digital document is undeniably intangible, and therefore can't be possessed. Blame the Bills of Exchange Act of 1882, which unforgivably failed to foresee the electronic revolution that would lead to innovations like the Internet, SWIFT and Wordle.
Under the proposed new legislation, certain digital documents can be regarded as possessed assets, and therefore qualify for the purposes of due diligence. Strict criteria are set, including provable jurisdiction over a document's content - in other words, has it been changed - and if so, by whom? I found this very encouraging as it's this single immutable source of truth that forms the very core of our next-gen blockchain.
But before I distract myself by extolling the virtues of biz.Clarency (again), let's look at why the new bill is such a good thing.
Proper adoption of digital documentation allows information sharing, rapid searches and intelligent cross-referencing, all of which contribute to greater transparency and reduced cost. Direct integration with digital settlement and real time payment will change the funding of the supply chain. Transparency of movement and shipment and legal certainty of ownership will assist financing buyers and sellers in the fight against money laundering. The proposition includes links to to digital identity through the Legal Entity Identifier - LEI - to provide certainty and key information on registered owners.
The prize is clear. Perhaps $2 trillion in additional trade as costs are removed and new methods of working capital funding are introduced. At a time when global recession threatens, ICC forecasts over $30 billion in economic growth in the UK as a direct result of the Bill, with a further $220 billion or more in savings from increased efficiency.
So international banking and a country's economy stand to gain, but what does it mean for SMEs in emerging regions? I believe that increased transparency and reduced cost could greatly improve the risk:reward ratio that has caused many banks to withdraw from too many regions. Small businesses in these regions will become a far more appealling commercial proposition; they're cheaper and safer to deal with.
The Electronic Trade Documents Bill is therefore a powerful enabler for profitable trade between the UK and buyers or suppliers in countries that have been marginalised due to an unacceptable risk:reward balance. That's good news for the UK, but it's fantastic news for SMEs in those regions. Economic prosperity beats foreign aid hands-down.
Of course, for that to happen, other jurisdictions must follow the UK's lead. If there's an incompatibility between the practices of two regions, the one with the more limiting regulations will be the one who governs the the trade.The UK Law Commission has identified this limitation and has implemented a project to ease harmonisation of international trade laws. Here at Clarency we're constantly refining our own systems to stay ahead of such changes, looking particularly at our new-generation blockchain-enabled distributed ledger storage.
The Electronic Trade Documents Bill represents a host of business opportunities. When passed into law, first-movers in exploring those opportunities will be the big winners. We're preparing right now to be ready.