Interpretation | Banking Regulatory Commission: Encourage the use of new technologies such as blockchains to regulate supply chain finance

It has been predicted that supply chain finance, which will reach 15 trillion yuan in 2020, is booming in recent years. However, the phenomenon of numerous participating institutions and hidden risks of fraudulent loans has also become prominent.


The China Insurance Regulatory Commission recently issued the "Guiding Opinions of the General Office of the China Banking Regulatory Commission on Promoting the Real Economy of Supply Chain Financial Services" to the major commercial banks and insurance companies (Banking Supervision Office issued [2019] No. 155) to regulate the innovation of supply chain finance business. The model, the improvement of the supply chain business management system, and the strengthening of supply chain financial risk management and control have made more detailed regulations.

The Opinions require that bank insurance institutions should rely on supply chain core enterprises to integrate various information such as logistics, information flow and capital flow based on real transactions between core enterprises and upstream and downstream chain enterprises to provide upstream and downstream chain enterprises in the supply chain. A comprehensive package of financial services such as financing, settlement, and cash management.

The "Opinions" pointed out that bank insurance institutions should adhere to the four basic principles when conducting supply chain finance business:

Adhere to precise financial services, guided by market demand, and focus on supporting industrial chain enterprises that conform to the direction of national industrial policies, whose main business is concentrated in the real economy, advanced technology, and competitive in the market;

Adhere to the true trading background and strictly guard against false transactions, fictitious financing, and illegal profit-making;

Adhere to the transaction information available to ensure direct access to the first-hand original transaction information and data;

Adhere to the risk of comprehensive control, not only the risk changes of core enterprises, but also the risks of upstream and downstream chain enterprises.
In addition, the "Opinions" also pointed out that it is necessary to standardize the innovative supply chain financial business model, improve the supply chain financial business management system and optimize the external environment of supply chain financial development.


"Opinions" encourage the use of blockchain and other technologies to enhance risk control

In the near future, the collapse of multiple institutional asset management products with supply chain finance as the underlying assets has caused hot market debate. Compared with traditional financial services, supply chain financial risks are characterized by dynamic, transitibility and complexity. The "Opinions" also strengthened the management and control of the overall risk of supply chain finance from five aspects.



The Opinions suggest that banking financial institutions should establish and improve a risk control system for the entire chain of supply chain finance. According to the characteristics of supply chain financial services, improve the pertinence, effectiveness and effectiveness of risk management in all aspects before, during and after the event, and ensure funding. Flow to the real economy. It is necessary to strengthen the monitoring of the core business operations, the core enterprises and the transactions of upstream and downstream chain enterprises, analyze the historical transaction records of the supply chain, and strengthen the tracking and management of logistics, information flow, capital flow and third-party data.

In Li Qilin, chief macro researcher of Lianxun Securities , there may be risks in the supply chain before, during and after the loan. In the pre-lending aspect, with the development of network file transmission, digital signature, big data analysis, and blockchain technology, supply chain finance has become online. Banks' review of supply chain finance is mainly the materials provided by enterprises. The development trend of onlineization has made banks rely too much on words and documents for auditing. There may be some small and medium-sized enterprises that use the supply chain financial loans and the inclusive financial preferential policies to defraud. In terms of loans, SMEs will use funds to engage in activities other than production, such as the payment of employee salaries, etc., without improving the cash flow of the entire supply chain, and weakening the ability of enterprises to repay loans in the future. After the loan, the credit risk of the SMEs may be unstable.

Therefore, the Opinions require banking financial institutions to conduct due diligence and professional judgment on the authenticity and rationality of transactions when conducting supply chain financing business. Bank insurance institutions are encouraged to embed new technologies such as the Internet of Things and blockchain into the trading session, using mobile sensing video, electronic fences, satellite positioning, and radio frequency identification to remotely monitor logistics and inventory goods to improve the level of intelligent risk control.

In terms of strengthening compliance management, the Opinions require that bank insurance institutions should strengthen the compliance management of supply chain financial services, and in accordance with the requirements of returning to the source and focusing on the main business, comply with the rules and prudently carry out business innovation, and prohibit the use of financial innovation in violation of the law. Unauthorized business or disguised business. It is not allowed to build a multilateral asset trading platform that provides intermediary services such as matching and quotation in the name of supply chain finance.

In response to how to improve the supply chain financial business management system, Sun Yang emphasized that supervision must go deep into the banking and financial institutions, and conduct in-depth and comprehensive inspection and formulation of the trading rules and trading background of supply chain financial enterprises. It is necessary to ensure that banks and financial institutions can strictly comply with the financing requests of supply chain financial enterprises, and comprehensive and real-time monitoring of supply chain chains after access.


How does the blockchain escort supply chain finance?

The core of the blockchain is the distributed accounting database, which gives the participants equal rights to the information, and either party has the right to view all the information and cannot modify or delete it. Decentralized, transparent visualization, non-tamperable, traceable and other characteristics make the blockchain an effective technical means to enhance the financial transformation and upgrading of the supply chain. Supply chain finance is a typical alliance chain application, and is committed to turning related information into shared knowledge and improving the efficiency of system operation.

Secure information: consensus algorithms ensure data is not tamperable

The consensus algorithm determines the validity of the record by whether the nodes reach a consensus, and is also a means to prevent tampering. The blockchain uses the consensus algorithm to update the latest progress of the recorded data in real time, and presents the complete transaction process to each participant to ensure the authenticity of the information. Time stamping each data during recording is not only beneficial to locating information, but also tampering with the data of a certain node will leave traces, effectively preventing the information from being deleted.

Specific to the supply chain financial application field, blockchain technology can guarantee the authenticity and integrity of the data source during the review stage, and it is easy to check whether the transaction behind is actually carried out and ensure the bond certificate is reliable [ii]. In the post-lending risk control phase, the continuously updated data stream provides support for subsequent tracking of corporate operations, making fictional transactions and repetitive financing inconspicuous. The blockchain application gives the supply chain finance a higher level of security, eliminates the financial institutions' concerns about the information flow of the enterprise, and correspondingly solves the problem that the SMEs cannot self-certify the credit level to a certain extent.

Controlling compliance risk: Smart contract protection transactions are executed on a contractual basis

Smart contracts are seen as an important development direction in blockchains that are most valuable and easy to popularize in business scenarios [i]. It encapsulates a number of states and preset rules, trigger execution conditions and specific situational solutions, and is stored in the blockchain contract layer in code form. The characteristic is that when the agreed conditions are met, the preset operations are automatically triggered. The intelligent implementation form that relies only on real business data not only ensures the smooth execution of the contract in the absence of third-party supervision, but also eliminates the possibility of artificial false operations.

In the condition confirmation stage, based on the price quality information updated in real time on the blockchain, the business information flow of the external parties is checked, and after the transaction is determined, the smart contract is activated and executed. At the same time, the pledge is tracked through the Internet of Things, monitoring price dynamics and setting different automatic response schemes to control market risks. In the subsequent stage of contract execution, decentralized public ledger and multi-party signature technology can be used to strengthen fund flow management and collection monitoring.

Breaking through data islands: building a common information platform for digital assets

In the traditional supply chain management, the production information, commodity information and capital information distributed in each node of the supply chain are separated from each other, cannot flow smoothly along the supply chain, and lack an information platform built around core commodities. Blockchain technology supports multi-participation, information exchange and sharing, can promote data democratization, integrate broken data sources, provide strong protection for big data analysis based on supply chain, and make big data credit and risk control possible.

The significance of blockchain blessing is not only to speed up the efficiency of information circulation, but also to ensure the quality of data and protect the privacy of data. Transparent trade flows, capital flows, and information flows are not the same as the complete disclosure of all data, and encryption algorithms ensure the privacy of each supply chain participant. If the core enterprise sends the received goods information to the supplier, it will not be disclosed by other companies in the system to ensure the objectivity of the data.

A common information platform addresses supply chain traceability issues. The information needs of the entire process of production process, logistics and transportation, terminal sales can be quickly obtained from the platform, making the transaction path clear at a glance, and the connection relationship of each node is more transparent. This not only accelerates the flow of commodity information, reduces audit costs, but also helps to trace responsibility, prevent default risks, and ensure the smooth operation of financial risk control business.

Improve financing efficiency: digital systems streamline operational procedures

The factors that restrict the improvement of financing efficiency include pre-audit and risk assessment, multi-level registration and approval of business, and lengthy processing procedures. The various types of expenses are high, which further improves the financing costs and efficiency of SMEs. To break the shortcomings of the traditional financing model, mainly from the cost savings and operating rate increase both ends at the same time force.

First, blockchain openness transparency can reduce the cost of communication and the cost of communication in order to improve the efficiency of business collaboration when core enterprises conduct business with upstream and downstream. Supply chain integration has promoted the improvement of the rapid response mechanism for customers' needs, and also prevented inventory management confusion, procurement and transportation disruptions and other problems that seriously hinder the trade process. At the same time, the risk assessment cost can be greatly reduced for both banks and enterprises. Simplify traditional credit assessment steps, remove verification procedures due to increased trust crisis, reduce time cost and capital cost, and ultimately improve financing efficiency through chain reaction.

In terms of operating rate, all physical goods and paper operations can be digitized, such as digital operating systems, digital files, digital credit systems, etc., saving time for the business implementation process. The use of smart contracts will reduce the cost of manual supervision, and can be automatically executed under the premise of being independent of third parties. The business process nodes are closely connected and the operation procedures are simplified. Accordingly, the efficiency of loan review and issuance based on the above transactions has also been significantly improved.

Expand your business: scalable programming to create diverse applications

In the 2.0 era of blockchain applications, it is not limited to digital currencies, but extends to the financial sector. Determine the future value of assets by means of smart contracts, precise calculations, enforcement, and other means to ensure the direction of use of assets. In the process of constructing financial assets and their contracts, the key is to measure the value at different points in time. Blockchain technology can solve the problem of asset pricing and open the way for creating diversified financial asset portfolios.

The construction of traditional complex investment and financing portfolios is subject to risk level control, and multi-layer information transmission and coverage have increased opacity, making it difficult for financial institutions to make strides on the road of product innovation expansion. Visual value measurement provides opportunities to create richer portfolios while giving financial institutions sufficient information for flexible matching and risk hedging, laying a solid foundation for business innovation.

In this way, both small and medium-sized enterprises and banks can find a balance and reduce risks in the combination of different combinations, and to a certain extent, effectively solve the difficulties of small and medium-sized enterprises' financing channels.

Product diversification is also reflected in the flexibility of contract design. There are also many advantages to trading based on smart contract under the application of blockchain technology, one of which is the programmability of code contracts. The flexible programming features of the blockchain are maximized in the design contract process. The individual personality clauses can be added according to the actual situation and the demand, and are no longer limited by the traditional contract template to achieve precise marketing.

In addition, the terms can be matched with the underlying big data, using historical data and current information to build metrics to improve the scientific design.

In addition, the programming blockchain also allows regulatory technology to advance to a technical level. The advancement of capital flows makes visualization and deterministic regulation possible, and promotes the transition from passive supervision (waiting for data submitted by the regulator) to active supervision (active acquisition of regulatory data), which increases the exposure of currency illegal use.

This technology can be applied in various fields of business supervision, fund supervision and taxation supervision, and even develops a new type of supervision mode. Blockchain technology can foresee a new round of e-commerce supervision in the future.

Nowadays, blockchain is used more and more in the supply chain finance field, but the industry lacks standards. Therefore, the China Material Link Block Chain Branch will set up a supply chain financial standard and application working group, and cooperate with all parties to promote the blockchain. Industry standards and applications, as well as qualified companies to participate.

The article was transferred from the public number: China Federation of Block Chain Branch