Trade finance: the right stuff

05 July, 2023Alex Gray

Learning points from The London Institute of Banking & Finance’s Annual Trade Finance Compliance Conference (ATFCC) held in London on 21 June 2023.

Alex Gray, Head of Trade and Transaction Banking at LIBF provides a quick rundown of the key sessions. The conference was held under the Chatham House Rule, so speakers aren’t quoted directly.

Doing the right thing when nobody is watching

“Has anyone ever exceeded the speed limit when driving?” asked the speaker inTrade our keynote session on human behaviour and compliance. There was a pause, then eighty-seven percent said ‘yes’. If you’re wondering about the other thirteen percent, five percent said they didn’t drive. That leaves eight percent who adhere to the rules of the road. They may even be telling the truth. According to UK government statistics, ’under free-flowing conditions‘ – and when they don’t realise they’re being monitored – around UK 50% of car drivers stay within the limit.

Why does this matter? People comply with the rules more when they know they’re being watched, but integrity is doing the right thing when no one is watching– and that is what good compliance demands. In particular, the speaker pointed out, “it depends on the ‘tone from the top”. Everyone has to be seen to adhere to the rules, starting with the leaders. Otherwise, a bank’s compliance programme is doomed to fail.

Personally, I was pleased that our expert did not contradict anything I had said in our article, Good compliance starts at the top, released the day before on how to the challenges of managing a compliance team.

Knowing your customer

If there was an overall message at the conference, it was about the need to share information between banks on compliance related issues. Whilst banks clearly compete in the market – and clients need to be able to rely on banks to keep their data private – not sharing any data at all opens the door to fraud. For example, if one bank has a client blacklisted, it should, ideally, be able to tell other banks. Clearly, the blacklisted client has a right of reply, but collaboration to ensure that criminals do not have the opportunity to move on to another financial institution is vital.

It can be easy to underestimate just how unabashed and persistent criminals will be – and how naïve and ineffectual some supposed compliance processes are. The conference was told about one bank that had asked someone to look more closely at a particular client. “Who is this person?” they wanted to know. They approached the branch where the account was held and were told that all was well. “Here are the ID documents, the client’s passports – all four of them”. The passports were at least, the conference was told, all in the same name.

Life on the front line

As that anecdote suggests, trade finance might rely on getting documentation and compliance right, but it would be a mistake to assume that it’s dull. As one speaker pointed out “everything comes into it”. Trained, expert, staff are needed for a reason.

It was fascinating to hear from a banker who had once worked at commodity company that became the victim of multi-million-dollar fraud.  The company thought it had bought $8.5m worth of copper. Then, a freight forwarder complained that the containers were leaking. Would copper leak? This was the first time that the company had thought to inspect the boxes. They were the correct weight, but full of dirt not copper. The only thing of value was an old car hub cap, worth about $70 on eBay. As no-one had done the correct due diligence, even the insurance company was bogus. The overall loss to the firm was $25m.

Now, in his work as a banker, the ex-trader uses experiences like that to help protect his clients – and wider society. The costs of fraud, after all, are not just borne by one firm but by everyone because the costs are passed down.

If you’d like to watch our specific ‘Tales from the Trenches session’ on what things look like on the front line of trade, it can be seen as a webinar here.

Sustainability – a steep hill to climb

Fraud is not the only social harm that banks help reduce and manage, and no compliance conference worth its salt would be complete without a session on ESG. The conclusion of the speakers was that ESG compliance is only in the foothills and that banks should start preparing now for a steep uphill climb on ESG scrutiny by reaching out to both regulators and clients. 

Technology – digitalization is a big theme

Technology was – clearly – both its own session and a thread through all the discussions. In particular, how the UN’s Model Law on Electronic Transferable Records (MLETR) will facilitate the next step in trade digitalization was an overall theme. It was great to be joined by members of ICC UK who are leading the charge globally with their Centre for Digital Trade and Innovation (C4DTI). We also heard from another sponsor, Complidata, which uses AI driven process solutions to streamline compliance and trade finance processes.

Continuing professional development

One of the reasons for attending a conference – aside from networking – is continuing professional development. One of our valued sponsors, S&P Global, has published a very interesting paper on the Russian ghost fleet. This is a must-read for CPD, if it’s relevant to your role.

A celebration of the achievements of trade finance

Last, but not least, it was encouraging to hear from a global bank about how it celebrates the achievements of individuals who have detected trade based financial crime. The average trade person in operations is modest and tends to say they were ‘just doing their job’. Maybe so, but they often save their bank from a whole world of pain by detecting something in the documents that is easy to miss. So, hats off to the people who try to make sure that what needs to be right is right.

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