A Secure End-to-End Blockchain-Based Solution to Finance Trade: The Legal, Technological, and Economic Framework

Project: Applied Research

Project Details

Abstract

Financial technologies (FinTech) are expected to revolutionize the banking industry and help overcome inherent hurdles in the current finance-related processes. As an example, conventional trade finance processes (e.g., Letter of Credit) continue to be a resource-intensive operation due to the physical exchange and scrutiny of trade-related documents that are vulnerable to fraudulent activities. Bank settlements and fulfillment of financial obligations are also time consuming locking up the working capital of banks and businesses alike. Moreover, the lack of transparency and interoperability between different trade partners impedes the banks’ ability to detect malicious behavior in the financial ecosystem. The FinTech industry duly proclaims that the blockchain technology can address many of these inefficiencies. It is also expected to enable the creation of innovative financial services through the integration of data flows and processes across various stakeholders. Realizing the legal and security challenges that this disruptive technology presents, QCB in collaboration with QDB, recently assembled a FinTech taskforce to explore the full potential of Blockchain technology. The taskforce aims at creating a FinTech ecosystem to host startups and FinTech companies to operate in Qatar under QFCRA. A blockchain sandbox will be established under the governance of the Central Bank to help companies experiment with FinTech utilities endorsed by stakeholders of the FinTech taskforce. The key applications of interest include trade, payment, and commerce. In line with the vision of the banking sector in Qatar and consistent with the call for research of Qatar’s NPRP, this proposal focuses on supporting the FinTech taskforce initiative in the following ways: 1. Research, validate, and incorporate security and design improvements to the blockchain technology that will be chosen by the QCB and bring it to the next generation, 2. Research and develop the smart contracts for FinTech and RegTech utilities to facilitate trade for businesses in Qatar, and 3. Work with the Fintech taskforce to evaluate and align stakeholders’ expectations of the FinTech ecosystem with existing and future policies and regulations of government bodies in Qatar. Our program is comprised of six sub-projects. The first sub-project – blockchain infrastructure – is led by HBKU and focuses on overcoming current limitations in the design of existing DLT technologies such as scalability and transaction reversibility. The second sub-project– blockchain security – which is led by QCRI addresses security threats like resistance to DDoS attacks, protection of private keys, etc. Those PIs of those two sub-projects will collaboratively support the delivery of a rule-based, distributed, and permissioned blockchain platform. The third sub-project exploits the network effect of blockchain technology to co-create value for Qatar’s FinTech ecosystem. The objective of this sub-project is to propose optimized trade finance utilities to the FinTech taskforce to endorse. The sub-project will start with the Letter of Credit (L/C) and follow up with expanding the range of trade finance facilities currently offered by banks to include novel instruments that are most suitable for Qatari SMEs like Supply Chain Finance (inventory financing and receivable purchases) as well as optimized of supply chain logistics. The offering of these utilities will be empowered by the shared blockchain network. The fourth sub-project focuses on Regulatory Technologies (RegTech) and uses artificial intelligence (AI) and advanced analytics to provide utilities for compliance, risk assessment (KYC), and fraud identification (AML, CFT). This sub-project will exploit the wealth of data added by the different trade partners and run analytics to provide intelligence to the Customs Authority (ports), banks, and the Ministry of Foreign Affairs to name a few. The sub-project will also employ artificial intelligence to detect anomalous and malicious behavior in the ecosystem. Led by the College of Law at Qatar University, the fifth sub-project will help the FinTech taskforce in governing the Fintech ecosystem. Specifically, we will work with key stakeholders and governance bodies to assess and advance standards, policies, and guidelines related to trade finance. Another objective of this sub-project is to promote the initiative within the larger business community and ensure its sustainability after the completion of the program. Lastly, the aim of the sixth sub-project is to manage the effective coordination and integration of work among the five sub-projects to ensure the program milestones are achieved. While the proposal is motivated by QNRF’s call for applied research on Cyber Resilient Fintech, we also address the current political challenges that are facing Qatar and propose effective means to alleviate the financial and operational hurdles facing the different trade stakeholders. During 8 months, we embarked on a knowledge exploration initiative with local banks like QDB, QFC, MoTC, MoFA, QPay, etc. to propose use-cases that create value for the different stakeholders. The key benefits that were identified within the banking sector include reduced processing time and cost, improved risk assessment, and diversified market opportunities. For local businesses, we expect the proposed solutions to shorten the trade cycle and improve liquidity. We also expect the novel Supply Chain Financing utilities to free the working capital, reduce shipping cost, and facilitate trade financing for SMEs. We expect the proposed solutions to result in operational efficiencies for the Customs Authority and Milaha Logistics and ease congestions at the seaport, reduce customs processing time and cost, and provide intelligence to predict fraudulent activities. Qatar’s Central Bank will have better visibility of trade activities through advanced AML and CFT analytics and reporting.

Submitting Institute Name

Qatar University
Sponsor's Award NumberNPRP11C-1229-170007/NPRP11C-30579-SP-21
Proposal IDEX-QNRF-NPRPC-9
StatusActive
Effective start/end date26/01/2031/01/25

Primary Theme

  • Artificial Intelligence

Primary Subtheme

  • AI - Analytics & Decision Support

Secondary Theme

  • Artificial Intelligence

Secondary Subtheme

  • AI - Smart Economy

Keywords

  • Blockchain, Security, Trade Finance
  • Banking
  • Cryptocurrency

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