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Blockchain: What happened during my stay in South Africa? (Part III)
| 4-1-2017 | Carlo de Meijer |
In earlier articles on treasuryXL I focussed on new reports and startups (Part I) and on banks and consortia (Part II) while in today’s article I want to write about central banks, market infrastructure and card schemes.
CENTRAL BANKS
Central banks in Japan, Sweden and Singapore, among others , have launched blockchain efforts, with the European Central Bank (ECB) announcing a new research undertaking in partnership with the Bank of Japan on 6th December. The US Federal Reserve recently launched its first major research paper on blockchain.
Japan’s Central Bank Staff are Running Blockchain Trials
Japan’s central bank is researching and testing blockchain to study the possible use of distributed ledger technology for market infrastructure. They are “test-driving” blockchain technology to understand the innovation, according to its governor Haruhiko Kuroda. Speaking at a financial forum centered around digital innovation and Fintech, the Bank of Japan’s governor underlined blockchain as having the potential to “significantly affect” the basic pillars of financial activities – money and ledgers.
ECB and Bank of Japan research DLT for market infrastructure
The European Central Bank and Bank of Japan agreed to launch a joint research project to study potential use cases of blockchain technology for market infrastructure. This initiative comes after the ECB revealed that it is open to taking a closer look at exploring the potential for blockchain technology as a means to further innovation among central banks around Europe. The bank is toying with the idea of tapping DLT, among other options, for its revamp of the Target2 real-time gross settlement system and Target2-Securities platform. If this is to happen, more research into the technology is needed, prompting a collaboration with the Bank of Japan which will see findings released next year.
Bundesbank and Deutsche Börse test blockchain for securities settlement
Germany’s central bank has teamed up with Deutsche Börse to develop a functional prototype for blockchain technology-based settlement of securities. The prototype thereby enables the settlement of securities in delivery-versus-payment mode for centrally-issued digital coins, as well as the pure transfer of either digital coins or digital securities alone. In addition, this technology is capable of settling basic corporate actions such as coupon payments on securities and the redemption of maturing securities, using code from the Hyperledger Project as a basis. Both parties now plan to work on it over the next few months to test its technical performance and scalability. According to the Bundesbank, the project is aimed at providing a basis for further exploring the use of the tech in the securities trading space.
French Central Bank Pilots Blockchain
According to a report issued by the Banque de France it was announced that they tested blockchain technology for potential uses in managing SEPA Credit Identifiers, or identification markers used to establish the identity of creditors within the Single Euro Payments Area. This marks its first publicly acknowledged blockchain trial by the central bank. The trial was conducted with blockchain startup Labo Blockchain in collaboration with the Caisse des Depots et Consignations.
MARKET INFRASTRUCTURE
SWIFT unveils blockchain proof-of-concept (PoC) for bond trading
SWIFT recently unveiled its first proof-of-concept (POC) for managing the entire lifecycle of a bond trade based on blockchain technology. The internal POC demo tackles the issue of asset servicing across the full lifecycle of a bond trade, from issuance to payment of coupons and maturity. For the tests, Swift set up five separate nodes on a simulated network, stretching from Swift offices in California as the ID provider to an account servicer in Virginia and three investing banks in Sao Paolo, Frankfurt, and Sydney. SWIFT expects to see a number of other POCs come to fruition in Q1 2017.
SWIFT intends to sketching out a roadmap of key initiatives planned for 2017. These include working with vendors and member banks to deliver a blueprint for a SWIFT-run distributed ledger and the development of a DLT sandbox. For the latter, SWIFT intends to collaborate with member banks on a select number of use cases for the future application of distributed ledger technology as part of their Global Payments Innovation initiative.
ICAP to process foreign exchange trades on blockchain in 2017
ICAP, a UK-based operator and provider of post trade risk mitigation and information services, has announced plans to start processing foreign exchange trades on blockchain. For that, ICAP brings along its subsidiary Traiana and has teamed up with Axoni, a US-based technology company to supply the code to customers in March 2017. Traiana will thereby act as a messaging hub for forex, fixed income and swaps deals. They thereby provide services to monitor pre-trade risk and automate post-trade processing of financial transactions in listed and over-the-counter trading markets. Also, it will reconciles transaction, reference, market and portfolio data before it is transmitted to regulators, clearing houses or back to financial institutions.
Everex trials blockchain remittance in Thailand
Everex, a financial inclusion blockchain development company seeking to improve access to financial services and markets for un- and under-banked population across the world, has tested blockchain remittance. Over 100 migrant workers transferred money instantly over blockchain to their homes in Myanmar in the last months. Therefore, over 850,000 Thai baht (around USD 24,000) were transferred using the Everex wallet, a mobile and web based app that sends digitized national currencies using Ethereum blockchain. Overall, average transaction took less than a minute and recorded savings of over 7% in remittance cost and currency exchange rates.
CARD SCHEMES
MasterCard files blockchain patents focused on payments and transacting
MasterCard has filed to the US Patent and Trademark Office (USPTO) four applications related to its work (focused specifically on payments and transacting) with blockchain and distributed ledger technology. The applications focus on methods and systems for authorizing, processing and securing blockchain-based transactions. MasterCard is arguing that a combination of blockchain and its existing payment technology could bring great benefits for those making digital payments. Publication of the applications comes weeks after the credit card company released a set of experimental blockchain APIs.
Lotte Card rolls out biometric authentication based on blockchain in Korea
Lotte Card, a large card issuer company in Korea, has adopted a biometric-based authentication system service in its payment app jointly with Blocko, a blockchain startup. Blocko is the provider of Coinstack, a blockchain-based development platform, and has a large number of references in providing blockchain technology in Korea. Financial organizations in Korea, including banks, card companies and Korea Exchange, are actively adopting blockchain technology, but this is the first case in Korea of commercialized blockchain technology combined with biometric-based authentication system.
Carlo de Meijer
Economist and researcher
Safety of payments
| 3-1-2017 | Lionel Pavey | GT News
Fraud and cybercrime protection is of major importance for corporate treasurers. In the past year a new risk had to be added to the list: connectivity. Reports of banks being hacked and losing millions through unauthorised payments appeared more and more frequently and since protecting payment connectivity workflows was not a high priority item on the list of treasurers, it created damage in the industry.
GT News deals with the topic of how to protect payments in their article’ ‘Five tips for keeping your payments safe‘ on december 21st, 2016. We asked our expert Lionel Pavey to comment on the article and give us his own view on how to protect payments.
Safety of payments
As even medium size companies can easily have over 100,000 bank transactions per year, it is imperative for a company to ascertain the validity of all payments so that no fraudulent payments take place.
Authorisation Matrix
It is necessary to embed a clearly defined matrix within the company. This should follow a six-eye principle and be traceable within the payment system – invariably a bank payment system. The matrix should include the names of all those authorized; the amount they may authorize; the distinct legal entities they may represent etc. This data also needs to maintained and secured away from the payment centre (IT or legal department). If a new person needs to be added to the list who implements the procedure – Treasury or IT?
Types of payments
There are various workflows that will generate payments and these should be mapped and a complete process should be designed for each one – procurement system and creditors in the book keeping; financial obligations from the existing financing operations (loans, bonds etc.); tax on wages; social premiums; Value Added Tax (BTW); manual payments normally arising from expense claims and incidental purchases outside the normal procurement channel.
Validity of payments
Normal payments relating to creditors are relatively easy to follow – authorization has taken place in 2 different areas (procurement and book keeping). VAT requires data from book keeping for both debtors and creditors. Tax on wages and social premiums are normally presented just once a month either through the administration/controller channel or directly from HR. The biggest area of concern relates to manual payments.
Manual payments
These generally relate to purchases (normally one-off). The obvious question that arises is why is there a need for suppliers that are not in the existing procurement system? It is not impossible to ensure that there are preferred suppliers for all normal desires. Another source is repayments to debtors that are not balanced off against outstanding balances. If a company does not have dedicated software relating to the financing operations who, beyond the Treasury Department, can verify the amounts and dates? The area that requires the greatest vigilance relates to expense claims. Just because a line manager authorizes an expense claim does not mean that it is always compliant with company policy – this is an area where the onus should be on the controller to validate the integrity of the expense claim. Is the expense a genuine expense made in direct relationship to working for the company? An employee away on business and staying in a hotel is entitled to a meal at the expense of the company, but what is the policy towards alcohol and entertainment? Is the amount being claimed excessive and work related?
Integrity of bank systems
How secure is the bank system? When a batch is prepared for payment and an authorisation code produced, how is the code produced – what are the underlying factors that generate the code? Is it possible to alter the beneficiary’s account number after the batch has been produced? Would an alteration be seen by the system, resulting in an incorrect authorisation code? Banks generally do not provide a lot of information as to how their system generates codes.
Reconciliation
Who can extract data from the bank systems? Does this occur daily? Are all entries processed the following day in the book keeping system? What happens to items that are not immediately reconciled?
Conclusion
With regard to standard procurement, it should be easy to construct a solid working system that can be followed at all times. Manual payments are a weak link and a serious amount of time and effort has to be used in constructing a strong framework that has to be enforced and maintained at all times.
Lionel Pavey
Cash Management and Treasury Specialist
Blockchain: What happened during my stay in South Africa? (Part II)
| 30-12-2016 | Carlo de Meijer |
A number of interesting reports were launched, amongst others by Euroclear and Deloitte. And there has been growing blockchain and distributed ledger activity in the financial industry from start-ups, to banks, central banks, the market infrastructure and consortia. But also from advisory companies, central government bodies and others.
In my first article on treasuryXL, earlier this week, I wrote about two reports and startups. I want to focus on banks and consortia in this second article about blockchain developments.
BANKS
BNP Paribas completed its first blockchain-based live cross border B2B payments
BNP Paribas has completed its first live cross-border B2B payments between corporate clients using blockchain technology. The transactions, conducted on behalf of packaging outfit Amcor and trading cards group Panini, were cleared in various currencies between BNP Paribas bank accounts located in Germany, the Netherlands and the United Kingdom. For the ‘cash-without borders’ project, the payments were fully processed and cleared in a few minutes. This highlights the potential of the technology to eliminate delays, unexpected fees and processing errors, and pave the way for real time cash management. The bank has strong commitment to follow closely and further accelerate their participation in a number of market initiatives aiming at improving the corporate payments experience using blockchain technology.
Citi backs blockchain startup
Citi has invested in blockchain venture Cobalt DLT, ahead of what the company expects will be a second round of funding in 2017. Cobalt DLT is a blockchain startup aiming to bring distributed ledger technology to the processing of foreign exchange trades. Transactions in the FX market are notoriously inefficient and costly. Currently, foreign exchange trades need multiple records for buyer, seller, broker, clearer and third parties and then reconciliation across multiple systems. Cobalt is now building a post-trade processing network based on distributed ledger technology. The Cobalt DL solution has the potential to significantly improve post-trade services by cutting costs and reducing risk for our industry. Cobalt DL’s FX solution is set to launch in 2017, with 15 institutional participants committed to using the service.
CONSORTIA
While the number of consortia in the blockchain arena are further growing, the bank-backed R3CEV sees some cracks in the consortium. Some of its biggest founding members parted ways. Big names like Goldman Sachs and Banco Santander are leaving the R3CEV consortium. And new reports are surfacing suggesting that others such as JP Morgan, Morgan Stanley, Macquiries, US Bancorp and National Australia Bank may follow soon.
The R3 consortium has its first Spanish-speaking Latam member
But there is also some good news. Creditcorp, a Spanish-speaking Latin American financial institution, has joined the R3 consortium to design and apply distributed and shared ledger-inspired technologies to global financial markets. The bank provides corporate and personal banking, brokerage services, and other financial services across its six principal subsidiaries in Peru, as well as other South American countries including Bolivia, Columbia and Chile, and is listed on the Lima and New York stock exchanges.
R3 and Calypso to develop blockchain trade confirmation system
Blockchain consortium R3 continues to press ahead with new initiatives, partnering with Calypso Technology to develop a multi-party trade confirmation system running on its Corda distributed ledger-based smart contract platform. Calypso will be the first application partner to adopt the R3 platform, utilising the technology to enable counterparties to see all trade tickets on the distributed ledger so they can be sure they are matching against the correct trade.
JPX to form Japanese blockchain consortium
Japan Exchange Group (JPX) is to form a consortium of financial institutions to run trials of the use of blockchain technology in capital markets infrastructures. The exchange will seek participation from a wide range of Japanese financial institutions in order to gather broad industrial expertise ahead of testing in spring 2017. They will consider a structure for efficient information sharing between the DLT engineer community and financial institutions through efforts such as training on DLT technology. The Tokyo Stock Exchange together with the Osaka Exchange and Japan Securities Clearing Corporation (JSCC) will lead the coalition which intends to create a test environment for Proof of Concept (PoC) using Hyperledger fabric, the open source DLT platform, in cooperation with IBM.
Blockchain applications, consortium for Malta Stock Exchange
Malta Stock Exchange (MSE) has announced plans to research and develop into the blockchain technology, and to establish its own consortium. MSE’s committee will be run by MSE board members, blockchain experts and its chairman. The consortium will be sharing knowledge and establishing connections or joint-ventures with each other to assist fintech companies based on the blockchain technology, to grow by supporting them in designing and implementing blockchain applications. Furthermore, with this consortium, the Malta Stock Exchange could be planning its first blockchain application. It is very likely their first application on blockchain will replace standard stock exchange platforms.
South Korea rolls out blockchain consortium
The Korea Financial Investment Association (FIA), along with 21 financial investments and five blockchain companies, have teamed up to form a blockchain consortium. The group has signed a memorandum of understanding (MoU) to collaborate on projects and share their expertise on blockchain technology. Moreover, the group aims to create business opportunities for the consortium as well as establishing a platform with the member companies. Its future research projects include the establishment of a common platform for personal authentication due in 2017, researching into clearing and settlement automation in 2018 and 2019, and a platform for over-the-counter trading for 2020.
Microsoft creates Asia’s first blockchain consortium on Azure
Microsoft has teamed up with AMIS and the Industrial Technology Research Institute of Taiwan (ITRI) to form Asia’s first and the most advanced consortium blockchain network on Azure. The consortium includes members such us: Ubon Financial, Cathay Financial Holdings, MegaBank, KGI, Taishin, and CTBC Bank. Aim is to further develop blockchain opportunities in the Taiwan financial market.
The pilot blockchain project is developed using ITRI’s technology (to create an internal application program interface (API)) and Microsoft Azure. AMIS chose Ethereum, to develop a permissioned blockchain, an infrastructure specific to the needs of Taiwan’s financial market. As part of the project, ITRI provided its advanced technology to create an internal application program interface (API), while Azure provided high-speed cloud computing to ensure high security and efficiency for the blockchain infrastructure.
XBRL and ConsenSys work on deploying blockchain tokenization standards
XBRL US, a US non-profit consortium for business reporting standard, has teamed up with Consensys, a blockchain technology company, to work on deploying blockchain tokenization standards. The working group aims to establish a standardized method to represent a token across all blockchain networks in order to eliminate transactional friction and reduce processing costs; enable automation and provenance tracking; and allow interoperability of transactions on a global scale.
The working group will establish goals and action steps by early 2017, and is requesting participation from individuals representing technology, finance, and accounting to provide their expertise in developing tokenization standards that can be used worldwide, for all asset classes.
Source: LinkedIN/Carlo de Meijer
Carlo de Meijer
Economist and researcher