The guide, prepared by the IFA market practice committee in conjunction with Denton Wilde Sapte, is designed to cover guidance on originating a forfaiting transaction as well as basic principles, good practice and the growing influence of secondary market transactions.
The introductory framework document, which its originators hope will be ready this year, has also been drafted to engage with the increasing popularity of forfaiting, particularly with financial institutions in the emerging markets who are unfamiliar or new to the process.
"Forfaiting is becoming increasingly popular with banks and financial institutions in countries where forfaiting has never taken place. Many of these banks are joining the IFA and are benefiting from the educational seminars and material that we produce, but to address their specific needs the IFA decided that an introduction or guide to how the product works in basic terms would be helpful to them. This is the purpose of the Primary Guide," comments Edwards to GTR.
The presentation featured discussions on the guide's regulatory remit and potential influence on transactions, especially in the context of commercial decision-making coming into contact with rigorous risk mitigation and documentary requirements. The differing, flexible approaches to issues such as credit enhancement, the importance of defining the trade link and the need for representations and warranties were explored.
"We are currently taking views and opinions from our members who of course have a great deal of accumulated wisdom which they can share with new entrants. In parallel a working group of the ICC (International Chamber of Commerce) has been examining the draft guide and has made many valuable comments, the more so as they come to the document from a different angle. This is our first experience with working with the ICC and we are hopeful that even more can be accomplished in the future, says Edwards.”
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