Signal as much as myFT Every day Digest to be the primary to learn about Letter information.
Your protection of the “unusually blunt” letter despatched by the Monetary Conduct Authority and Prudential Regulation Authority to financial institution chief executives relating to their commerce finance companies underscores the comprehensible goal of UK regulators to boost monetary crime controls within the wake of a number of high-profile market failures (“UK regulators inform banks to enhance commerce finance”, Report, September 10).
It’s, nonetheless, vital to put this intervention in a broader context in two vital methods for the sake of the actual financial system.
First, intensive media protection of the collapse of commodity companies and boutique financiers in current months dangers distorting understanding of the true dangers concerned in commerce financing. Knowledge to be launched by the Worldwide Chamber of Commerce later this month will present that default charges on widespread commerce finance offers remained extraordinarily low in 2020 regardless of the financial results of Covid-19 — with impairments on lower than 0.three per cent of all transactions globally. In different phrases, multimillion greenback fraud instances could make for good media copy, however they’re really the exception in an in any other case secure and low-risk market.
Second, a few of the vulnerabilities recognized by UK regulators can’t be solved by banks in isolation.
To take one instance, your article rightly cites the “archaic paper-based techniques” on which most commerce finance transactions rely. However these can solely be rendered absolutely digital — and thus extra resilient to fraud and monetary crime — if coverage reforms are enacted throughout all main buying and selling jurisdictions to present full authorized impact to digital commerce paperwork.
In comparable vein, synthetic regulatory restrictions proceed to inhibit the sharing of monetary crime intelligence between banks.
Considered from this angle, the hassle to deal with monetary crime dangers in commerce finance would finest be pursued by regulators in a proportionate and collaborative method.
To do in any other case — pushed by a slender deal with uncommon however high-profile market failures — dangers impairing the stream of important capital to companies at a significant second within the restoration from the coronavirus pandemic.
John WH Denton
Secretary Normal, Worldwide Chamber of Commerce, Paris, France