INNOVATION
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HKMA

Hong Kong’s monetary authority unveils trade finance platform based on blockchain technology

PUBLISHED : Thursday, 30 March, 2017, 7:28pm
UPDATED : Thursday, 30 March, 2017, 10:46pm

Hong Kong appears set to burnish its credentials as a global trading hub, with its development of a proof-of-concept distributed ledger platform for trade finance using Blockchain technology.

The Hong Kong Monetary Authority (HKMA) led this initiative, which was supported by professional services group Deloitte and five of the city’s top banks, according to a joint announcement on Thursday.

Their project was designed to demonstrate the feasibility of using the distributed ledger technology known as Blockchain to reduce the risk of fraudulent activity, while increasing business transparency, operational efficiency and productivity in trade finance.

“As the largest trade finance bank in the world ... we were interested in assisting corporates to track transaction flows, reconcile transactions through invoice or purchase order matching, and reducing the risk of duplicate financing for the participating banks,” Joshua Kroeker, the senior product manager for global trade and receivables finance at HSBC, told the South China Morning Post.

“This development puts Hong Kong at the heart of a global effort to digitise trade, making it easier, faster and cheaper for businesses.”

Other financial institutions involved in the HKMA initiative were Bank of China (Hong Kong), The Bank of East Asia, Hang Seng Bank and Standard Chartered Bank (Hong Kong).

Blockchain, the digital ledger technology behind cryptocurrency bitcoin, provides a series of networks of databases that allow participants to create, disseminate and store information in an efficient and secure manner, eliminating the need for a central authority and bringing greater transparency for regulatory reporting.

The HKMA project was started in December and completed earlier this month, according to Robert Rooks, the financial services institution clients and markets leader at Deloitte China.

“The implementation ... clearly demonstrates the ownership of the assets or goods being traded, further enhancing Hong Kong’s reputation as Asia’s leading city for trade finance,” Rooks said.

Li Shu-pui, an HKMA executive director, said the regulator plans to continue working with the banking industry to explore proof-of-concept digital ledger technology projects. He added, however, that a number of issues, including legal, regulatory and governance, still need further consideration.

In January, a joint analysis by global consultancy Accenture and operations-benchmarking specialist McLagan showed that adoption of Blockchain technology could help eight of the world’s 10 largest investment banks slash infrastructure costs by an average of 30 per cent a year, which would translate to between US$8 billion and US$12 billion in annual cost savings.

“HKMA’s work with the major banks is potentially groundbreaking, and shows real commitment to use financial technology for the benefit of the market and consumers,” said Paul Haswell, a partner at international law firm Pinsent Masons. “This is encouraging for Hong Kong’s many fintech start-ups.”