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Your coverage of the “unusually blunt” letter sent by the Financial Conduct Authority and Prudential Regulation Authority to bank chief executives regarding their trade finance businesses underscores the understandable objective of UK regulators to enhance financial crime controls in the wake of several high-profile market failures (“UK regulators tell banks to improve trade finance”, Report, September 10).
It is, however, important to place this intervention in a broader context in two important ways for the sake of the real economy.
First, extensive media coverage of the collapse of commodity firms and boutique financiers in recent months risks distorting understanding of the true risks involved in trade financing. Data to be released by the International Chamber of Commerce later this month will show that default rates on common trade finance deals remained extremely low in 2020 despite the economic effects of Covid-19 — with impairments on less than 0.3 per cent of all transactions globally. In other words, multimillion dollar fraud cases may make for good media copy, but they are truly the exception in an otherwise stable and low-risk market.
Second, some of the vulnerabilities identified by UK regulators cannot be solved by banks in isolation.
To take one example, your article rightly cites the “archaic paper-based systems” on which most trade finance transactions rely. But these can only be rendered fully digital — and thus more resilient to fraud and financial crime — if policy reforms are enacted across all major trading jurisdictions to give full legal effect to electronic trade documents.
In similar vein, artificial regulatory restrictions continue to inhibit the sharing of financial crime intelligence between banks.
Viewed from this perspective, the effort to tackle financial crime risks in trade finance would best be pursued by regulators in a proportionate and collaborative manner.
To do otherwise — driven by a narrow focus on rare but high-profile market failures — risks impairing the flow of essential capital to businesses at a vital moment in the recovery from the coronavirus pandemic.
John WH Denton
Secretary General, International Chamber of Commerce, Paris, France
