The International Trade and Forfaiting Association (ITFA) has published rules covering the transfer of electronic payment obligations in a move towards creating “a fully digital trade landscape” and modernising the forfaiting market.
The Uniform Rules for Transferable Electronic Payment Obligations (URTEPO) will provide a framework for transferring electronic payment obligations as the market prepares for digitisation, clarifying “parties’ roles and responsibilities in the transfer of these obligations”, the association says.
The rules are designed to be “technology neutral” and consistent with the United Nations Commission on International Trade Law’s (UNCITRAL) Model Law on Electronic Transferable Records (MLETR), which provides a template for countries to give electronic trade documents the same legal standing as their paper-based counterparts.
The UK’s version of this, the Electronic Trade Documents Bill, was introduced to the House of Lords in October and is expected to become law in early 2023. In November, the French government signalled its intentions to make progress on digitising trade finance by commissioning a review into the regulatory changes that would be required.
While the URTEPO have been developed to work with both MLETR and the Electronic Trade Documents Bill, they can be used in contracts now, “even in jurisdictions where these laws have not yet been adopted, as long as an electronic payment obligation has been created”, ITFA says.
ITFA chairman Sean Edwards says that the organisation’s overarching work on the digital negotiable instruments initiative, which aims to digitalise trade documents like promissory notes and bills of exchange, means that it now offers “an end-to-end journey for trade-related financial instruments”.
Geoff Wynne, partner at Sullivan, the law firm that led the ITFA working group responsible for drafting the rules, told attendees at ITFA’s ‘Creating a framework for the future’ seminar on December 5 that the URTEPO represented “another step on the road to facilitating the transfer of digital payment obligations”.
“Where we go next will be up to all of you. If we can all embrace and persuade you to embrace the uniform rules in the same way, you can use them now to transfer a digital payment obligation,” he said.
While the URTEPO covers electronic obligations, paper-based transactions are still governed by the pre-existing Uniform Rules for Forfaiting. The rules also only cover the transfer of a payment obligation already existing in electronic form, rather than the technical creation of the obligation, where the technology is still in a relatively early stage of development.
“What we’re seeking to achieve is what everybody really wants to have: can I become the holder in due course? In other words, can I as the purchaser of this digital product promise have the absolute right to claim payment against the issuer of that promise,” Wynne said, adding that a fully fledged technical system has yet to be developed.
“The magic is going to be a reliable system where the payment obligation resides and can be securely transferred,” he said.
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