FSA initiatives must go beyond UK banks
Initiatives by the Financial Services Authority (FSA) to improve the banking environment need to look beyond the UK’s border in order to bring significant change, trade finance experts have said.
Following the FSA’s announcement that trade finance rules should be reviewed to give banks more power to prevent fraud, Barclays’ head of trade and working capital Tan Kah Chye tells GTR that it is too early to know how significant an impact it would have on the business.
“The FSA is simply announcing the review so it’s too early to tell whether this will bring a massive change in the industry, but for change to be effective in managing financial crime, one has to make sure that we have a framework that is globally consistent and that goes beyond banks,” he says.
At the 10th Annual British Bankers’ Association (BBA) financial crime conference on September 26, the FSA’s director of the enforcement and financial crime division, Tracey McDermott, said the agency was beginning a review of the tools provided to banks to control fraud, with a report to be published in Q3 2013. “There are many ways international trade can be abused. To what extent can banks, which only see the documents and never handle the physical goods, detect this type of abuse? Our project will visit a range of banks to understand current practice, focusing in particular on the risks of letters of credit and bank collections,” she said.
Tan believes a UK-focused initiative would not particularly help trade finance banks, which constantly have to juggle between various jurisdictions. He adds that financial crime cannot be managed by banks exclusively, and that its eradication requires collaboration with other parties. “For trade finance as an industry to manage financial crime effectively, one really has to go beyond the financial sector. It has to be done in collaboration with the custom and border agencies, multilateral agencies and the police across multiple jurisdictions.”
It also emerged this month that the FSA had relaxed UK banking rules to encourage lending, which Tan believes could have a positive impact on trade finance, despite not being targeted directly at this segment of the market.
However, he adds that further than supporting the banking industry, the UK government should take measures to boost demand for lending. “Talking to our clients right now, a lot of them are simply flushed with liquidity. As much as we would like to lend to them, they are actually looking for a place to utilise the funds that they have, in terms of investment and in terms of trade. We will definitely miss a trick or two if we don’t look at the demand side of the equation,” he says.