Technologies make financing transactions more efficient by enabling instant communication, frictionless payment settlement, the creation of digital assets, the recording of transfers, and bringing together multiple parties. These processes occur within digital infrastructures that label themselves registries, exchanges, or platforms. 

What do they have in common and how are they different? We both spoke at the United Nations Commission on International Trade Law (UNCITRAL) Colloquium on “Harmonizing law in the age of digital trade and finance”. Divided into two streams, Stream 1 focused on digital assets and secured financing, while Stream 2 focused on digital platforms and private law. Stream 1 featured a panel (#5) that explored digital platforms for transactions and asset-based registries, and a panel (#10) in Stream 2 focused on supply-chain platforms. In our panels, we identified the various functions of these three infrastructures and examined their legal effects. Legal certainty is critical to the functioning of these infrastructures and supply chain operations. 

While technology certainly delivers benefits, it could also increase legal uncertainty and complexity. When a company joins a platform, exchange, or registers some information in a registry, what legal rights does it acquire? Platforms, exchanges, and registries need to be distinguished. They may be established pursuant to some law or a private agreement of their participants. The former may typically provide for some (limited) legal effect, such as a transfer of a receivable on a receivables platform, but the latter won’t, so that a recording of an invoice in a registry for invoices would not produce the legal effect of transferring the related receivable. 

Platforms, exchanges, and registries play a significant role in the financing of tangible and intangible assets, including goods covered by bills of lading and rights to payment. These infrastructures may draw their legal foundations from the UNCITRAL’s Model Law on Electronic Transferable Records (MLETR) or similar legislation. How should we design and explain the legal framework to the users to ensure that these technological infrastructures deliver the expected benefits while reducing legal complexity? 

To understand the legal effect, one must understand the process. Registries, exchanges, and platforms may provide the following processes and services. Many of these infrastructures support supply chain, value chain, and trade finance products. 

1. Supply chain finance 

Supply chain finance relies on the transfer of receivables, which should confer priority and effective enforceability on a financial institution. Collateral registries established under secured transactions law, such as the United Arab Emirates Federal Law No. 4 of 2020 on Security Rights over Movable Assets, establish priority and protection against other creditors, particularly in insolvency proceedings. However, laws of this nature do not provide financial institutions with tools to verify whether the receivable exists, whether it is fraudulent, or whether the underlying transaction violates any sanctions. This is the function of other types of registries and platforms. 

Invoice registries may be established voluntarily by associations of financial institutions, which agree to share information on invoices they finance with the registry, thereby reducing the risk of illegitimate transactions and double-financing. Recent examples include invoice registries established by MonetaGo in Bahrain and Singapore. 

The receivables finance market is populated by other infrastructures that facilitate transactions, with or without legal effect. Trademo provides a solution that enables financial institutions to verify whether the transaction that generates a receivable is legitimate and does not violate sanctions. Registries and private-sector infrastructure often operate alongside public-sector-supported platforms, such as the Trade Receivables Discounting System (TReDS) in India and the Emirates Development Bank National Supply Chain Finance Platform, which both facilitate various reverse factoring functions. 

Transfers of receivables on these platforms acquire a legal effect only between the assignor and assignee, which must effectuate a registration in a collateral registry for the transfer to gain effectiveness against third parties. Technology is powering new infrastructures, but we need to understand their legal effects. 

2. Trade finance 

Digital infrastructures not only digitise established assets and processes, but also create alternative financing structures that deploy technology. One such platform is TradeGo, which has developed a stablecoin to facilitate and settle payments in cross-border transactions using electronic bills of lading (eBLs). Once issued, the eBL is locked in a smart contract, and a financing request is initiated. The eBL is transferred from the shipper’s account to the lender’s account, and the stablecoin locked in the smart contract is transferred to the shipper through the web3 payment service. Once goods arrive at the final destination, the buyer then makes the final payment and collects the goods. 

Locking in an eBL and other transactional elements on a blockchain reduces know your customer (KYC) efforts through the use of the vLEI enterprise digital identity standard of the Global Legal Entity Identifier Foundation (GLEIF), as well as administrative costs. The solution provides much faster liquidity than the many days it would take a bank to review documents presented under a traditional letter of credit. What law is necessary to provide legal certainty for this type of transaction, where financing is provided on the security of the eBL? As this is a cross-border transaction, what law even applies in the first place? 

3. Deep-tier supply chain finance – a single product for multiple tiers of suppliers

As with the financing of goods, digital infrastructures enable innovation that extends beyond the digitalisation of existing processes. Pilots are being launched, including by the Bank for International Settlements or the Asian Development Bank (ADB) and the SME Finance Forum, to examine the legal treatment of complex, relatively new financing structures that can be executed only through platforms, such as deep-tier supply chain financing. 

They are inspired by approaches in some jurisdictions, such as China, that recognise accounts receivable electronic instruments (AREIs) issued by large anchor buyers, such as auto-maker BYD, for financing and paying receivables. These pilots may rely on ‘payment or digital trade tokens’ that are neither receivables nor negotiable instruments. 

The laws governing these traditional payment rights may not be sufficient to fully unlock all features of these credit products, as they may, for instance, require multiple registrations of partial transfers of receivables or exclude payment conditions that would render an instrument non-negotiable. How do we ensure that participants acquire enforceable rights in such tokens? A functioning digital infrastructure dictates an enabling legal design.  

4. Value chain finance – multiple products for farmers 

Digital infrastructures increasingly provide a suite of services that move commodities from producers to end users, adding value along the transaction chain. For instance, in Nigeria, Babban Gona uses platform-based finance structures to channel credit to its farmer members. A combination of secured finance products enables farmers to grow and sell their commodities. Babban Gona contracts with large millers who commit to purchasing a specified amount of commodities. 

This is a contract-farming type of financing. Through its platform, it engages farmers to first provide input based on short-term loans tied directly to their production cycle, repayable at harvest rather than through monthly instalments. After farmers commit to sell their future harvest through the platform, they receive QR codes to obtain seeds and other inputs. Babban Gona offers harvesting and marketing support services that help farmers preserve grain quality, reduce losses, and secure higher prices than they could obtain individually. Services typically include access to trained harvest teams, storage and aggregation facilities (often with warehouse-receipt-style arrangements), and quality control to ensure that produce meets the requirements of institutional buyers and processors. 

By aggregating maize and other crops from many smallholders into larger, consistent lots, Babban Gona can negotiate premium prices and more stable off-take contracts, which are then passed back to members after deducting credit and service costs. The platform thus facilitates pre- and post-harvest financing based on future harvests, stored commodities, and commitments from large millers (i.e., receivables). However, every financing transaction it records would be governed by a statute that may, for instance, require registration in the collateral registry or taking control of any electronic transferable record that may, for instance, evidence goods in a storage facility. 

As digital infrastructures improve, laws will need to be further modernised. For instance, interoperability remains a major challenge for some platforms. To some extent, it depends on the type of credit product. For a letter of credit payable on presentation of numerous documents issued by multiple parties, which must also be cleared through banking and customs channels, technological and legal interoperability is critical. In contrast, for a platform for receivables finance products, it may integrate with systems that verify the identity of the person and the existence of a receivable; technological interoperability is not dependent on legal interoperability. 

Has the law kept pace with the digital infrastructures? Understanding what functions and processes the law already enables is critical to building infrastructure that effectively reduces risk and delivers value for users. Not only must laws go hand in hand with digital infrastructures, but they must also do so within increasingly cross-border chains of transactions.