A plethora of financial services firms came together to create a blockchain-based solution for the trade financing industry.

A Hong Kong regulator, Deloitte and a raft of banks have developed a proof-of-concept that uses blockchain technology to streamline certain elements of trade finance.

Hong Kong Monetary Authority joined forces with the Big Four firm and other institutions including Bank of China, HSBC and Standard Chartered. Together, they have created a platform that leverages blockchain technology for banks, buyers, sellers and logistics companies involved in trade financing. 

Blockchain technology, a virtual distributed ledger of transactions shared peer-to-peer, can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. It is already known as the platform for the controversial digital currency bitcoin. 

The technology is causing a stir within the financial services sector as its supporters believe it could reduce hidden expenses in the financial system by ousting inefficiencies across areas such as payments, syndicated loans and equity clearing.

Deloitte said last week the proof-of-concept demonstrated the power of blockchain, as the technology allowed typically time-consuming processes to be simplified. 

“The proof-of-concept has demonstrated the application of [blockchain] in digitising paper-intensive processes through smart contracts, reducing the risk of fraudulent trade and duplicate financing, and improving the transparency and new product innovation of the industry as a whole,” Deloitte said in a statement. 

Due to the blend of institutions and regulators involved, the project also explored the legal, regulatory, governance and data security issues tied to the technology, Deloitte said. 

Deloitte says that the success of the project has strengthened Hong Kong's position as a trade finance hub. 

“The proof of concept result has shown the potential of using [blockchain technology] for trade finance though there are still a number of matters such as legal, regulatory and governance issues which need further consideration,” Li Shu-pui, executive director of HKMA, said. “We will continue to work with the banking industry to explore the possibility to materialise the value proposition of this proof of concept work.”

Deloitte continues to generate ripples as it wades through the waters of blockchain at speed. Earlier this year, the group launched blockchain laboratories in Dublin, Ireland and in the heart of Wall Street, which created breeding grounds for firms looking to create solutions that use the nascent technology.

Deloitte's blockchain team is comprised of more than 800 professionals spanning across 20 countries. To date, the firm has developed more than 30 blockchain-based prototypes.