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Surety bonds, breakthrough on blockchain. Lower costs and less risk of fraud

Operational the project of Cetif supervised by Bank of Italy and Ivass. The value of the market in Italy is 1 billion, set to rise with the tenders envisaged by the Pnrr
Edited by Alessandro Graziani | Sole24Ore
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Edited by Alessandro Graziani | Sole24Ore

The technology blockchain is known to be the foundational element of the diverse world of cryptocurrencies, which in recent times has proven to be the cause of major financial scams. But a new technology can have several applications and, in the case of blockchain, can even become the backbone infrastructure of a system that helps combat fraud.

This is the case of the new platform for the digitization of surety bonds on DLT/Blockchain developed by the Research Center on Financial Technologies and Services ofUniversità Cattolica in Milan (Cetif), which, after a study and testing phase started three years ago, is now ready to go live. In the past few days, the platform built with technology partners such as Nexi and Reply and implemented on the DLT Algorand, has been tested with stakeholders: guarantors, guarantors and policyholders. And by the first quarter of 2023, the new digital surety bonds are expected to be fully operational. The potential market for surety bonds is already large and is expected to grow, considering that about 50 percent of the guarantees insured relate to procurement, with the implementation in Italy of Pnnr.

According to data provided by Cetif, "the total value of the surety market in 2021 was 1 billion between premiums and commissions in Italy and 10 billion in Europe." Digitization through blockchain of surety bonds aims to intercept a fast-growing market and counter the phenomenon of fraud, so much so that from the beginning of the project both the Bank of Italy and Ivass and Guardia di Finanza have participated as observers.

The Gdf itself has ascertained that in the past four years, financial malfeasance that has emerged on surety bonds has reached the amount of 1.6 billion. Among the causes of fraud, according to Cetif, the main ones are: "Almost purely manual process, lack of a certified database, lack of a standard in contracting." Deficiencies that can generate, among other things, document tampering, scanning and duplication, digital identity theft. "We take into account that the value of ascertained fraud refers entirely to the prePnrr period," comments Professor Federico Rajola, director of Cetif , "and that from now on, given the significant amounts of contracts that will go out to tender, those,figures may increase. Among other things, the draft of the new procurement code provides for economic reductions for sureties submitted on distributed registers: "The amount of the guarantee and its possible renewal is reduced by lo% when the operator submits a digitally issued and signed surety bond, which is managed with through the use of platforms operating with technologies based on distributed registers."

In addition to its anti-fraud role and cost benefits, digitizing surety bonds will provide certified information to all actors in the supply chain, facilitate coordination and access for all those involved, and dematerialize and streamline surety bond management. "Until now, the need to store and catalog paper documents has made the management of surety bonds, which are a critical junction in public and private procurement, inefficient," explains Imanuel Baharier, generai manager of Cetif Advisory , "and without efficient management, the entire value chain is at risk. The project was shared from the beginning with the ecosystem of institutions, businesses, insurance companies, banks and associations interested in the phenomenon.

Also present at the official launch of the digital surety bond project were representatives of the Bank of Italy and Ivass , who "blessed" the initiative from the regulators' side. "The open character of the platform represents a system solution, with a plurality of technological providers," commented Massimo Doria of Bankitalia, "and it is important because .in this way the safeguards of legality are increased.