Insight & Analysis

How the UK’s ETDA and new laws in France will boost DNI take up in trade finance

Published: Jun 2024

Accessing liquidity has risen to the top of the corporate treasury agenda and demand for more effective and robust supply chain finance (SCF) solutions is increasing. Digital negotiable instruments (DNIs) could offer a solution for corporate treasury by helping to unlock improvements to cash conversion cycles through more effective management of financial supply chains.

Legal concept with the Lady Justice Statue

A combination of the successful introduction of the Electronic Trade Documents Act in the UK and the proposed new digital trade law in France represents a significant step towards the global adoption of digitalised trade and supply chain finance.

Both legislations align with UNCITRAL’s Model Law on Electronic Transferable Records (MLETR), which creates legal parity between paper and electronic versions of certain trade documents, such as promissory notes and bills of exchange, notes Dominic Broom, SVP Working Capital Technology at Arqit, a quantum encryption provider.

“The passing of the ETDA in 2023 was particularly significant as over 60% of trade documents worldwide are issued under English law, regardless of the domicile of the counterparties, therefore helping to break barriers towards the adoption of digital trade documents globally,” he says.

Furthermore, other common law jurisdictions, particularly those in the Commonwealth, are following the UK’s lead and are adopting similar legislation. The French legislation will further reinforce this trend, as countries with civil code jurisdictions look to France as the standard bearer for civil code law. “Should the [French] legislation pass this year, it will hopefully trigger legislative activity across other civil code countries, including many other EU nations looking to adopt the MLETR framework,” he predicts.

The new legislation removes legal barriers to the digitisation of trade and the adoption of DNIs. These highly-secure, unique and referenceable instruments, will enable improved access to working capital for businesses, particularly SMEs, he believes.

DNIs offer atomic settlement, reduced operating costs and enhanced transactional visibility and embed resilience and ESG benefits into local and global supply chains, continues Broom. Moreover, they are auditable from source and digitally sealed, guaranteeing their enforceability and reducing the risk of transaction fraud.

“Corporates can unlock deep pools of available liquidity using DNIs. By issuing digital promissory notes in favour of their suppliers, they can enable funding to be cascaded down the corporate supply chains to suppliers, thereby avoiding lengthy payment cycles, high financing costs and subsequent strains on suppliers’ working capital.”

As the promissory notes are used as the lending instrument in place of invoices, suppliers can receive a same-day payment with 100% of the instrument’s value being financed. This in turn enhances suppliers’ access to funding across supply chains without affecting underlying trade flows – improving the working relationship between supplier and buyer.

“DNIs also provide corporates with greater flexibility and control over how and when they use SCF. For example, a corporate treasurer using a DNI can seamlessly switch between internal and external sources of funds depending on their liquidity needs and what is most effective for them at a given moment in their business cycle,” he explains.

Broom believes DNIs will help close the trade finance gap, supporting international trade and financial inclusion.

With countries, including Singapore, the UAE, the UK and most recently Mexico, adopting the MLETR framework – and with France following hot pursuit – the impact of DNIs is set to be revolutionary for supply chains, treasury digitisation and global trade. “Under current SCF arrangements, many supply chains are typically financed by the weakest link of the chain, but through DNIs, this can be reversed – transforming access to finance and potentially narrowing the trade finance gap.”

He predicts trade finance digitalisation and DNI application will grow globally, delivering cost reduction, process efficiency and data protection benefits to international trade and supply chains. “Its impact cannot be understated, and DNI solution providers such as Arqit TradeSecure™ will play a vital role in supporting and creating this new secure digital infrastructure,” he concludes.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).