Sponsored: Navigating the challenges of global trade ﬁnance
Graham Bright, head of risk and compliance at Euro Exim Bank, provides the specialist institution perspective.
Q: What are some of the biggest challenges the trade finance industry is facing?
Bright: The business of global trade remains complex. Despite its roots spanning back to the Babylonians in 3000BC, little has changed in the way that financial consideration and security for the movement, delivery and payment for goods and services across shrinking international borders is handled.
Add to this complexity the number of players, with a global ecosystem including buyers, sellers, shipper (over 50,000 commercial ships in the world carry 90% of the world’s trade), insurance, banks, freight forwarders and legal companies.
Modern day trade has increasing volumes (over 140,000 SWIFT messages per day) and values, which have become targets for an increasing burden of regulation, more sophisticated fraudsters, cyber threats such as malware, punitive financial penalties, sanctions and restrictive goods lists changing on a daily basis.
This all contributes to higher costs, with more specialist people and technology just to stand still for even the most basic transactions. With many firms de-risking, there is a marked reduction in international dealings and firms’ ability to trade in multiple markets.
Q: Innovation is key. How has this been realised across the organisation?
Bright: We believe technology is a key contributor to operational success, and with our specialisation, all employees are trained in and conversant with all our software systems. We think of ourselves as fintech and regtech-savvy, working with technology experts and partners.
We are constantly reviewing business practice and policies, the legal mandatory and optional changes we need, how to ensure all staff experience and views are taken into account, and doing all this without stifling entrepreneurial flair, innovation and competitiveness.
From the outset, we looked around the market for a suitable application to support our business model. Whilst there were a number of possible providers, their systems required us to adapt our workings to the software rather than having the flexibility to tailor the system to our organisation.
Our answer was to specify and commission our technology partner company Syngco to build and rapidly implement our trade platform, aptly named ‘Simplex’, the simple system for export and import of trade finance instruments cross border.
Having such a close relationship with technology enables us to make changes, enhancements, fixes and new releases in days rather than months. For example, we have already specified our approach to blockchain technology. However, before we embark on any investments and full production integration we are attending conferences, listening to experts, and keeping up to date on the debate and dialogue of the various consortiums claiming approaches to what is touted as the means for significant industry savings and operational simplicity.
However, the complexity of involved parties and lack of standard approach remains a fundamental issue, with, in our opinion, its immediate implementation and take-up in trade finance still being some years away.
Q: Digital is on the rise. How do we balance and incorporate the human element to an increasingly digital world?
Bright: As we personally know our clients, and volumes are relatively low, human relationships, trust and interactions are all important as we grow and refine our business.
We are also acutely aware of technology advances with the advent of personal assistants, chatbots and robo-advisors designed to convincingly simulate how a human would behave as a conversational partner. Reports from leading Management Consultancies indicate that Artificial Intelligence (AI) will be deployed in banks as their primary method to interact with customers within the next three years.
Whilst we have no immediate plans to introduce these automated systems, we retain the individual touch with our customers, as transactions are typically highly contractual, conditional, and complex.
With regard to advanced technology, we are delighted to be one of the first companies to use an innovative new AI-based due diligence technology named DDIQ. Designed to assist operators in checking hundreds of international data sources, it saves time and effort and minimises false positives when checking compliance sites and has already proved invaluable, with full ROI within the first month of use.
Q: What software have you deployed to support your trade finance activity?
Bright: Powered by our partner company Syngco, tasked to create the software to our unique specification, our ‘Simplex’ application is built with intelligent workflow across the life-cycle of the trade. With document capture and advanced data handling, creation of legal contracts and indemnities, creation of MT7xx SWIFT messages, full record keeping, pricing, invoicing and fees management, the system provides trusted, cloud-based real-time positions and information on all transactions.
As next steps, we are enhancing our due diligence (with DDIQ) and identity checking capabilities, for example, partnering with Selified. This will further enable us to integrate mobile technology comparing passport image verification as part of our identity proofing processes and looking at other best of breed advanced technology which may be integrated through standard APIs.
Q: You recently opened offices in St Lucia. Why the Caribbean and what does it bring to Euro Exim Bank in the International Markets?
Bright: The Caribbean region offers us great opportunities. There is a healthy export market in sugar, rum, coconuts, clothing, fruit, tourism and transport equipment. In terms of imports, the majority are from the US and are focused around foodstuffs, machinery and equipment, chemicals, fertilisers, minerals and fuels.
With proximity to the US, and the UK being the main single destination for exports and our Class A banking license granted in a highly regulated and trusted jurisdiction, we are perfectly positioned to grow non-domiciled regional and international business.
Q: How do you think the industry as a whole will look in five years?
Bright: We see a contracted financial market with more mergers and acquisitions in the funds and payment space. We also see banks retracting from specialist trade finance provision, leaving a core of smaller, experienced service-oriented institutions such as ourselves, to competitively and securely undertake the process of instrument issuance and third party relay of Letters of Credit and Standby Letters of Credit.
Another key area is the increasing regulatory burden and reliance on core teams running compliance functions, and we are taking all necessary steps to protect our organisation, our processes and customers.
Unfortunately, this heightened state of cautionary risk aversion will only stagnate rather than promote investment and the opportunity increased business in execution of Letters and Standby Letters of Credit. We can expect to see more cyber-attacks, and many more sophisticated frauds, hacking attempts and malware attacks against companies of all sizes.
Banks have traditionally been the main cyber, phishing and hacking targets, as “that is where the money is”, however, all sizes, types or locations are now in the cyber criminals’ sights.
Indeed, in a recent report by Accenture (‘Building Confidence: Solving Banking’s Cybersecurity Conundrum’), it was revealed that one in three cyber-attacks are successful. Additionally, almost 60% of attacks took several months to detect. The fact remains that many attacks go unreported to protect the reputation of the attacked party.
As an example, in our global trade arena, at a medium-sized shipping company CyberKeel, a virus was inserted tracking email and changing data on invoices, requesting customers to direct payments to different bank accounts. The losses, once detected were significant.
The NotPetya ransomware cyber-attack in June was another clear example of a directed malicious attack. This time the virus affected a range of firms including Reckitt Benckiser with an estimated £100mn hit in revenue. Shipping line Maersk stated that their incident could cost it as much as US$300mn (£155mn) in profits after the attack on its computer systems left it unable to dock and unload containers at some of its ports.
We are putting additional resources and management time into protecting our institution from cybercrime. We additionally have regular information sessions, information sharing, tight policies on hiring, business operations, wide ranging training and enhanced systems tracking, access protections and security.
As more disruptive challenger technologies such as web and mobile mediums proliferate through the financial sector, even as a small institution we would urge all companies to purposefully evaluate risks to the maximum extent of their budgets and capabilities. And, above all, exercise ongoing vigilance to protect their reputations and clients alike.take me back