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The trade finance distribution initiative – standardising trade finance tools when it is needed most


The trade finance distribution initiative – standardising trade finance tools when it is needed most

By Christoph Gugelmann, CEO and Nils Behling, COO of Tradeteq Company

 

Trade finance plays a critical role in international commerce, facilitating cross-border transactions for businesses of varying sizes with confidence. As the trade finance landscape faces uncertainty in 2023, it is crucial for trade finance marketplaces to evolve and innovate to help investors successfully navigate a fluctuating environment. The pandemic’s lingering effects, coupled with supply chain disruptions, shipping delays, and a general decrease in global trade, are still apparent. These issues have been exacerbated by rising concerns over the past year, such as geopolitical tensions, shifting regulations, and increasing interest rates. To address these challenges, trade finance must become more accessible and cater to a wider range of emerging investors.

In early April, the Chancellor announced a £10 billion capacity grant to UK Export Finance (UKEF), raising its maximum exposure limit from £50 billion to £60 billion. This expansion aims to ensure that no viable UK export fails due to inadequate finance or insurance, thereby promoting national economic growth and sustainable job creation.

While this development is beneficial for UK businesses and contributes to sustainability objectives, UKEF’s policies and pricing continue to hinder exporting opportunities. The British Exporters Association (BExA) has called for “simplification and digitisation,” indicating that more efforts are needed to improve trade finance accessibility.

Bridging the gap between banks and investors

The Trade Finance Distribution Initiative (TFDi) was established in 2018 to promote the standardisation of trade finance and assets. Spearheaded by the International Chamber of Commerce (ICC) Banking Commission and the International Trade and Forfaiting Association (ITFA), TFDi aims to enhance trade finance asset distribution among a broader investor base. The initiative collaborates with leading financial institutions and service providers to develop standardised best practices and offer guidance on business and regulatory matters.

One of the key ways TFDi helps standardise trade finance is by developing and promoting best practices in collaboration with leading financial institutions and asset managers. This effort ensures a consistent approach to risk management, regulatory compliance, and asset distribution, thereby creating a more efficient and transparent marketplace for investors.

Another vital aspect of TFDi’s standardisation efforts is the promotion of electronic platforms to facilitate trade finance transactions. By encouraging the adoption of digital solutions, TFDi seeks to streamline processes, reduce manual interventions, and minimise errors that may arise due to inconsistencies in traditional methods. This digital transformation not only enhances the efficiency of the market but also enables seamless cross-border transactions.

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TFDi has been instrumental in fostering dialogue and cooperation among various stakeholders in the trade finance ecosystem, including banks, non-bank financial institutions, and technology providers. This collaborative approach allows for the exchange of ideas, experiences, and solutions that drive standardisation and innovation in the sector.

The organisation is also dedicated to addressing regulatory issues and providing guidance on relevant business matters. By maintaining open communication channels with regulatory authorities and updating stakeholders on regulatory developments, TFDi helps create a more uniform and compliant trade finance environment.

Despite TFDi’s promotion of electronic platforms, the market has struggled significantly during the pandemic. The downfall of digital trade finance platforms like HSBC’s Serai, we.trade and Marco Polo has revealed the sector’s instability, with several ventures failing to scale and attain profitability. Consequently, investors face difficulties accessing trade assets, resulting in increased market liquidity demands. To address this issue, TFDi has worked to boost trade finance market liquidity and lower funding costs for banks and corporations engaged in trade finance.

Securing trade finance

Tradeteq, one of the founders of the TFDi, is an example of a platform that aims to grant investors access to a diverse range of trade finance assets, including payables, receivables, and letters of credit, as well as risk analytics.

Platforms like Tradeteq serve to connect banks and other trade finance asset creators with a broader investor audience, such as institutional investors and asset managers. This connectivity not only adds volume for banks but also enables banks to reach various investors and allows investors to access a wide array of banks.

The TFDi’s efforts in standardising trade finance have brought about increased transparency, efficiency, and accessibility within the market. Through the development of best practices, the promotion of digital platforms, fostering stakeholder cooperation, and addressing regulatory concerns, TFDi continues to drive positive change and innovation in the trade finance industry and provides a collaborative platform for change at a moment when it is needed most.

 

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