Enigio is at the forefront of digital document technology and it is clear that with their trace:original solution, a technical and practical solution does now exist to create true digital original documents. There has, however, been resistance among legislators to creating sustainable frameworks to facilitate the use of digital original documents as negotiable instruments in respect of international trade.
The UNCITRAL Model Law on Electronic Transferable Records (MLETR) provides a workable framework for such legislation. Enigio is very happy to take part in the preparation of a Whitepaper providing technical guidance on how to legally comply with MLETR.
The MLETR, its provisions, and its principles are very thoughtful and well-constructed. Rather than attempting to alter substantive law governing the form and content of negotiable payment instruments and documents of title or altering the formal requirements for such documents, it focuses on the concept of functional equivalence. Functional equivalence, in this case, signifies the ability for a technical solution, such as trace:original, to demonstrate the key properties which were previously only thought possible through physical possession of a signed paper document.
Given that a technical solution can meet the requirements laid out in the MLETR, commonly referred to as the Model Law, it is subsequently accorded legitimacy as a compliant instrument. The Model Law sets out the criteria to determine what exactly constitutes functional electronic data. Where Enigio provides a practical solution, the Model Law provides a framework which has the potential to achieve international acceptance and harmonization to promote exactly such technologies.
It is quite clear that the framework aims to reduce friction in international trade by promoting digitalisation and at the same time preserving certainty regarding the rights, responsibilities and obligations of all parties associated with the negotiable instrument. This goal is emphatically shared by Enigio.
Key MLETR requirements
As stated, the guiding principle for the MLETR is a functional equivalence. As such it is prudent to highlight some key provisions that provide clarity regarding which instruments achieve functional equivalence reliably:
In articles 8 and 9, the Model Law equates ‘accessible information data’ to ‘writing’ and a ‘reliable means of electronically identifying a person’s identity and intentions’ to ‘wet-ink signatures’. Although many jurisdictions around the world already accept electronic data in place of information and signatures on paper documents, this would effectively guarantee it with respect to negotiable payment instruments and documents of title. It also leaves the precise method up to the designer, making signatures and information accessibility technology-agnostic.
In article 10, the Model Law sets out the requirements for an instrument to be recognised as an Electronic Transferable Record. Three key elements must be present on a reliable basis: (1) a method of identifying the record as the Electronic Transferable Record, (2) a method of rendering the record under exclusive control until it ceases to have an effect, and (3) retention of integrity of the information (and signatures) within. In other words, any technical solution must reliably achieve exclusive control over a singular document and maintain its integrity throughout the instrument’s full life cycle.
In article 11, the Model Law provides for functional equivalence regarding the requirement of possession by way of exclusive control of an electronic transferable record. If a reliable method is used to establish control and to identify who has control, the electronic transferable record is as much in ‘possession’ as the physical document would have been. This, in tandem with the singularity requirement, gives the Electronic Transferable Record its nature as a digital ‘original’, although the use of the term ‘original’ is deliberately bypassed.
Finally, in article 12, the Model Law provides a general reliability standard by which any solution would be judged. The list of aspects provided is non-exhaustive and provides guidelines both for courts/arbiters and for designers of any solution aiming to comply.
While the remaining provisions are quite important, these illustrate well the regulatory framework provided, focusing on functional equivalence while leaving substantive national legislation for the relevant instruments intact.
trace:original as a Model Law compliant solution
Returning to trace:original, the technology is perfectly aligned with the guiding requirements laid out in the Model Law:
It is signature and information agnostic, allowing the user to create instruments in accordance with substantive national legislation and use acceptable electronic signatures.
It is uniquely identified by cryptographic hashes, published on a blockchain, which also guarantees that the document has remained unaltered. The integrity is maintained, without the need of publishing personal data or business information on a blockchain.
The person in sole control of a trace:original document is the holder of the corresponding private key, with the public key published on a blockchain to allow ownership to be securely verified. Not only is ownership exclusive, but any transferee can also be sure of it.
This exclusive control is also freely transferable, with no requirements besides access to a computer and connection to the internet. A key feature of negotiable instruments and documents of title in international trade.
In essence, the required aspects of an Electronic Transferable Record are achieved while maintaining a reliable standard for each component, leaving trace:original as the perfect document technology for the creation and maintenance of digital negotiable payment instruments and documents of title.
The Model Law when enacted was very forward-thinking, leaving the designers of technology that supports functionally equivalent records the freedom to achieve legitimacy in different ways. The key guiding principles of functional equivalence are visible in the framework and also in the construction of trace:original, both being able to function within existing infrastructures and without disrupting substantive law.
We hope to see this message promoted in the coming Whitepaper also and to see widespread adoption of the MLETR in the future.
Digital Negotiable Instruments (DNI) Initiative
In a recent webinar by members of ITFA’s Digital Negotiable Instruments (DNI) Initiative, it was further made clear that Enigio’s trace:original product was perfectly suited to comply with the UNCITRAL MLETR. In a summary report, ITFA’s Fintech Chairman, Andre Casterman, highlighted the key takeaways of the panel rich webinar.
Members of the Digital Negotiable Instruments (DNI) Initiative recently outlined how guarantees, bills of exchange and promissory notes can be digitised in the most pragmatic way. This is a strategic theme for ITFA which is why I invited legal and technology experts to debate the short-term future of electronic transferable records.
Trade Advisory Network (TAN)
Trade Advisory Network is constantly looking for ways to help their clients to digitalise international trade. At an industry level, they are actively involved in ITFA’s DNI initiative and members of the ICC drafting group for Uniform Rules for Digital Trade Transactions (URDTT).
According to John Bugeja, the Managing Director of TAN,
We first came across Enigio a couple of years ago and immediately recognised that their trace:original solution had the potential to address a genuine need that exists in the ‘real world’ of trade. This need has become more acute and more visible given the workflow challenges presented by Covid this year coupled with a heightened (and legitimate) focus on ESG issues. Alignment with the Model Law is critically important as the obstacles to adoption are now primarily concerned with legal certainty rather than technological workability. The portable nature of a trace:original document means members do not need to join a closed eco-system in order to realise the benefits of digitalisation. As such, users can use existing operating models and integrate trace:original documents into their workflows without incurring the investment costs and risks associated with a major re-engineering project.