Will Blockchain Disrupt Trade Finance

 

Will the Rise of Blockchain Disrupt Trade Finance in the Long-term

Despite the emergence and increased sophistication of bitcoin, blockchain remains a largely unheralded and unfamiliar technology. This is because many fail to draw the connection between the two, but in many ways the potential reach and applications of blockchain far outweigh anything associated with its most renowned offshoot.

In fact, blockchain also represents a good fit for online, commercial transactions between businesses, particularly in an environment where companies utilize a third-party trustee to safeguard their interests. Take trade finance, for example, which is likely to host a number of blockchain technologies in the near future and potentially create significant disruption within the sector.

 

Blockchain and Trade Finance: A Marriage Made in Heaven?

In the trade sector, there are a number of parties that would potentially benefit from the security advantages offered by blockchain. There are manufacturers, for example, who have a desire to produce, market and sell their goods to an international audience. We must also consider commercial buyers, whose task is to import global goods in order to sustain their employers’ business. The latter is particularly challenging at present, with UK buyers and those with an active trader account familiar with forex trading having seen the cost of imports increase as the pound has continued to endure a process of devaluation.

Increasing level of risk associated with international trading

With these points in mind, there is an increasing level of risk associated with international trading and trade finance in the modern age. While this risk is usually offset by banks and traditional lenders, who act as trustees in order to safeguard the interests of each party while also assuming the responsibility for reimbursing one or the other in the event that a specific deal collapses. The issue with this is that banks are increasingly all-equipped to perform such a role in the current climate, particularly with a larger number of trades completed through open trading platforms and the increasing pressure of a volatile social, economic and geopolitical climate.

 

In contrast, blockchain has the technological foundations and natural advantages that make it well-placed to address these growing challenges. It instantly negates the need for a central (and potentially vulnerable) ledger, for example, as blockchain is a distributed ledger that enables each party to store their own transaction history and data. Not only this, but blockchain also has a level of transparency and traceability that helps to provide genuine reassurances to parties, in the form of an enduring list of historical transactions that is constantly accessible and capable of providing advanced conflict resolution.

 

Will Banks Adopt Blockchain in the Long-term?

 Of course, the issue that remains in the question of accountability, as an independent technology source as blockchain would not be able to reimburse parties in instances when international goods are not delivered (as an example). The sensible solution would therefore be for banks to integrate blockchain technology into their existing software, primarily by acting as platform suppliers that external clients and counter-parties can connect to. This would help banks to improve their market share over time, rather than threatening the traditional status quo and placing their status as central ledgers at risk.

This will cause some considerable disruption in the short-term, of course, as banks get to grips with blockchain technology and look at adapt to a brave, new world. These challenges would surely ease over time, however, while enabling both lenders and blockchain to achieve their true potential in the commercial marketplace.

Marcus Turner Jones

 

 

 

 

 

 

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What Is MiFID II and what impact will it have on business

Even though the delay of the Markets in Financial Instruments Direction, MiFID II, will have been a relief to a number of investment firms that had waited for the release of the European Securities and Markets Authority’s regulation, it doesn’t hide the fact that it will come into practice. The impact that MiFID II will have on businesses is constantly changing and it is imperative to keep a finger on the pulse.

The launch of MiFID II in January 2018 is set to have a sweeping effect on asset management firms in particular who are responsible for providing transaction reports. Despite a couple of exceptions, these firms will no longer be able to rely on brokers for transaction reporting.

However, new technologies will be implemented to help businesses to meet their MiFID II reporting needs.

What is MiFID and MiFID II?

The first Markets in Financial Instruments Directive (MiFID) resulted in a major change to cash equity markets. Its best intentions were to remove barriers to make cross-borders trades and exchanges within Europe safer and more transparent. MiFID II regulates firms that provide services to clients, such as collective investment schemes or derivatives, and this also includes trading of location instruments. The legislation has a number of core objectives, including:

  • To improve investor protection
  • Alignment of regulation across certain areas within the EU
  • To increase competition between financial markets
  • To introduce reinforced supervisory powers

So essentially, MiFID II will introduce a set of requirements regarding communication, disclosure and transparency to benefit investors.

                                        What impact will MiFID II have on business?

 

                                 There are three main challenges ahead of MiFID II:

    

To Improve the market

MiFID II improves the competitive environment for financial instrument trading. This is achieved by establishing access in the market for trading platforms to expand. New rules regarding high-frequency trading will also be put into practice. It is likely for this to involve strict requirements for both investment firms and trading venues. Investment firms will also need to be aware of what types of businesses they are and are not in, and those that they are interested in joining.

To Increase Transparency

When MiFID II is introduced, more requirements will need to be filled when reporting commodity derivatives trading to attain transparency. To ensure success, all trading information must be recorded before and after the transaction for a larger number of financial instruments, when compared to MiFID, to provide increased accountability. Certain shares will be required to be travel-use regulated platforms, as opposed to over the counter, making the process more secure and private.

To provide investment protection

MiFID II focuses on improving investor protection to extend the introduction of robust controls, to prevent conflicts of interest. This will aid in encouraging transparency between pre-execution and post-execution, and enables fees payable in respect of investment advice to be banned. The introduction of new requirements and implementing existing ones will strengthen the protection of investors.