Trade Finance business faces increasing regulatory pressure - BNP Paribas Corporate & Institutional Banking

The emergence of new interactions

07 May, 2016

Note on the role of Industry Bodies in today's environment and highlights their interconnection with financial actors.

FOCUS interviews Irène Paschalidis, Head of Representation and Regulatory Affairs of the Trade Finance Competence Center at BNP Paribas. She explains the role of Industry Bodies in today's environment and highlights their interconnection with financial actors.

After two economic crises in 2008 and 2011 and the more recent economic turmoil, European regulators were forced to impose more stringent conditions on Banks and Financial Institutions to ensure sustainability of the market. The business environment has become more difficult to navigate for many actors – especially for those active in the Trade Finance world. Leveraging on a network gathering various organizations today helps to balance the effect of those new measures.

1) How important is the role of industry bodies in the current business environment?

International Industry Bodies are playing a crucial role in today's Trade Finance environment. As External Independent Organisms and Multilaterals, they are very active in the market and, given their status, can interact directly with regulators. Not only are they empowered with an advocacy and training role, but they also contribute to education, market intelligence and arbitration around policy topics. They regularly involve banks in the Working Groups they animate. This enables Regulators to better understand, thanks to the Industry Bodies' initiatives, the real economy underlying Trade operations and related challenges. Moreover it ensures a smooth business transition through emerging rules and regulations. The main representing Industry Bodies are:

THE ICC: International Chamber of Commerce (headquartered in Paris)
The ICC provides a forum for businesses and other organizations to examine and better comprehend the nature and significance of the major shifts taking place in the world economy. It also offers an influential and respected channel for supplying business leadership to help governments to manage those shifts in a collaborative manner for the benefit of the world economy as a whole.

BAFT: Banking Association for Finance and Trade (headquartered in Washington)
BAFT is the leading international transaction banking association, providing advocacy, thought leadership, education and training, and a global forum for its members. It has created a unique forum for collaboration on shaping market practices, influencing regulatory and legislative policy through global advocacy, developing and adapting business solutions, providing education and training and contributing to the safety and soundness of the global financial system.

FBF: French Banking Federation
FBF represents all French banks and foreign banks with operations in France in the form of subsidiaries or branch offices, whether they are European or from the rest of the world. Its main missions include the promotion of banking and financial activity at the French, European and international levels; the definition of the profession's positions, proposals or concerns vis-à-vis public authorities and economic/financial authorities; a role of intermediary between the banking profession and all the banking stakeholders (political and institutional spheres, media, consumers, professional associations, teachers, etc.); information of the member banks of current developments in the profession and regulatory changes, and answering any questions about their activities.T
"o protect client interests, banks and International Industry Bodies need to work hand in hand."
EBF: European Banking Federation
The EBF is the voice of the European banking sector with around 4.500 banks. Launched in 1960 the EBF is committed to creating a single market for financial services in Europe and supporting policies.

ITFA: International Trade and Forfaiting Association
IFTA is the worldwide trade association for companies, financial institutions and intermediaries engaged in trade and forfaiting. It brings together banks and financial institutions who are engaged in originating and distributing trade related risk and finding creative ways to mitigate threats. The ITFA acts as a valuable forum for its members to interact and transact business together profitably and safely.

The Standard Definitions for Techniques of Supply Chain Finance are a good example of collaboration, between the ICC Banking Commission – which acted as project facilitator, BAFT, the European Banking Association, Factors Chain International (FCI) and the ITFA. Based upon views and feedback from a large representation of industry specialists, the initiative led to the publication of clear definitions to ensure better communication for users (ranging from finance providers, corporates to regulators, legal practitioners).

2) To what extent do regulators interact with financial institutions in their process?

Over the past years, the various missions of regulators have proven to be very complex and changing on a regular basis. Indeed, the emergence of new technologies and the fast moving financial environment brought some conflicting situations and controversial responses.

The presence of Banks and Financial Institutions in the Working Groups is very valuable for the Industry Bodies since they provide operational insight as well as expertise on the Trade ecosystem. Moreover, they promote emulation and defend clients' interests. Participating in this type of organization helps to create visibility and to be active in the elaboration of new standards, rules and policies which regulate the Trade Finance world. Education tools, conferences are also a means to interact with Regulators without having to appear as an individual bank.

A number of fundamental reforms have been discussed with the European Bank in the past recent years. Dialogue was established through the Industry Bodies in order to negotiate with the European Banking Authority EBA. The link between Banks and Industry Bodies networks is crucial to develop and keep operational processes smooth. This is true especially in the Trade Finance sector.

3) What are the main challenges in the trade finance environment for the years to come?

Regulation tends to tighten and become more and more severe in the financial world. And Trade Finance is no exception. Agility is already a key asset in today's environment and will definitely be the guiding principle in the future. This is true not only for banks but also for corporates. The more equipped they are to anticipate and adapt to their business conditions; the better they are positioned to develop and ensure the sustainability of their activity.

Trade Finance is currently undergoing some profound changes in the way it moves and works. The métier faces some fundamental paradoxes: while the world is moving fast towards dematerialization and electronic transactions, regulators are pushing for more stringent measures. To protect client interests, banks and International Industry Bodies need to work hand in hand in order to monitor the regulatory developments and their implementation and also to create new opportunities for all parties involved in the chain.
Head of Representation and Regulatory Affairs of the Trade Finance Competence Center at BNP Paribas
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