The very nature of trade documentation, whether for Loans or OTC confirms, is that it always involves two parties, one on either side of the transaction and therefore it is not a process that can be ‘solved’ by one bank in isolation.
That said, the industry has come on by leaps and bounds over the years with the introduction of electronic signatures, storage of trade documents in secure, cloud-based repositories, and electronic trade matching platforms, plus many more advancements.
The main challenge within the industry is that financial institutions are all at slightly different stages of their automation journey and the market is still fragmented in the trade documentation space. There are a few key areas where technologies and strategies could be employed to improve digitisation in the future:
- Document Management Systems – Using advanced document management systems to digitise, store, and manage trade documents electronically. The advantages of these systems (apart from the obvious; removal of boxes of physical paper or overflowing inboxes full of email exchanges) are the version & access controls as well as full audit trails in one central place.
- Secure Communication Platforms - Not only can these platforms provide end-to-end encryption to exchange sensitive financial information and documents, but they can also provide a more efficient workflow management tool to help tackle the growing burden of business communication.
- Data Standardisation - Coming together across the industry to develop common standards and best practices for digitising trade documents market-wide is key to adopting date protocols to enable interoperability between different organisations and systems in the digital world.
- Smart Contracts & Distributed Ledger Technology (DLT) – Some financial institutions have begun utilising blockchain technology to implement digital smart contracts to help automate and streamline some trade confirmations processes. This advancement has improved efficiency, and a single source of verified data ensures data quality and consistency.
DLT has the potential, if used more widely, to revolutionise trade documentation processes. There is no question that a digital record of a trade shared by multiple parties who can work together to ensure an accurate, single version of the truth would be a massive step forward and almost a utopian state for providing secure and transparent trade documentation.
Despite the progress that the industry has made, there are still plenty of opportunities to further digitise traditionally paper-based trade documents, especially given the lack of consistency across the market. Utilising DLT would result in a large impact though this would be no small undertaking. In a way, the technology is the easy part, the biggest challenge the industry faces is to avoid creating even more silos. Collaboration across the market is absolutely key and interoperability to any digital solution is crucial for a successful market-wide approach.
If you would like to discuss this further, please reach out to Dominic Amura (Head of Post-Trade Services) or Alan Philpot (Chief Product Officer) at Delta Capita, or contact us directly via our website.
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