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Following the July 2023 enactment of the UK Electronic Trade Documents Act 2023, Geoffrey Wynne, Partner of Sullivan & Worcester UK LLP, conducted a one-hour webinar on the realities and practicalities of the Act. Titled “Have We Made It to Digital Trade Transactions?”, the webinar provided an overview of the Act, what transactions can be completed under it, what the Act means for different participants, what can be done, what impediments exist, and insight into the future under the Act.
The Act’s key change is that it allows for certain electronic documents to be possessed and transferred in the same way as paper documents such that if the Act is complied with, an electronic document will have the same legal effect as a paper document. Although the Act identifies the need for a reliable system to support the requirement of possession, it offers no exact definition of a reliable system and instead Section 2 of the Act provides a list of indicators that may be taken into account for purposes of determining whether a system is reliable.
To complete a digital trade transaction, a supplier and buyer would evidence their sale and purchase by way of electronic records. For Wynne, the practical question follows whether traders actually want to do it or is there such strong attachment to paper and/or distrust of mechanical data matching processes that parties are unwilling to engage in digital trade transactions in spite of the Act?
Wynne then considered how the Act may be viewed from the perspective of lawyers, legislators, regulators, fintechs, bankers, and customers. There are possible impediments obstructing or otherwise delaying execution of digital trade transactions. While changes in law, such as the Act, serve to facilitate a shift in behavior, Wynne notes that there are “things” that hold parties back. Among those identified: Lingering market complacency with paper processes; Investment costs for technology solutions; Compliance, KYC, and sanctions challenges; Continuing concerns over fraud; Interoperability of systems concerns; and Regulators’ unwillingness to adequately embrace technology solutions.
As for what is currently taking place, Wynne commented on what he terms “club based solutions” for LCs whereby all the members join a particular platform and they agree to accept a particular digital document which can then be transferred between them and when a paper version of document is needed, it can be required and furnished. He also referenced eUCP version 2.1 and the significance of its alignment with MLETR and the Act as regards to dealing with electronic records and payment obligations.
Looking forward, the focus is clearly on digital solutions for trade and trade finance. Stakeholders should pick up the pace to use what is currently available to accelerate trade and advance towards paperless, while mindful that AI should not replace the human element entirely. At the same time, parties should avoid being overly ambitious and be on alert for lofty solutions that are unlikely to pass beyond the proof of concept stage.
While Wynne contends that trade is not yet ready for the total digital trade transaction, it is moving in that direction and electronic trade solutions that the Act now facilitates should be embraced.
Trade & Export Finance, 27 July 2023