CGI has gone live with a new collateral management offering, CGI Trade360, which has been integrated into its cloud-based, global trade finance solution.

One of CGI’s existing clients, believed to be an Asian bank, recently became the first user of the new capabilities, which automate the management, monitoring and revaluation of underlying collateral in structured/commodity trade finance deals.

A number of other bank users of CGI Trade360 are expected to follow suit and go live this year with the new solution, which was officially launched in January 2015.

“Not unlike other banks, our client bank was still using spreadsheets for collateral management but there was a recognition that it needed to build out its capabilities to improve risk management and gain visibility into all its exposures,” says Frank Tezzi, vice-president, trade and supply chain solutions at CGI.

“New regulations governing collateral management under Basel III are a big driver of the need for this type of solution.”

“New regulations governing collateral management under Basel III are a big driver of the need for this type of solution,” explains Rory Kaplan, offering manager, trade and supply chain at CGI. “However, banks themselves are also becoming much more risk aware and recognise that they can no longer conduct this type of activity on spreadsheets.”

Basel III requires banks to demonstrate a legal stake in the commodity collateral they are financing and show it is under their control. They must also prove they have precise collateral monitoring practices in place; be aware of the collateral’s real-time market value; and understand their aggregated exposures to individual commodity types and other criteria.

According to Kitt Carswell, senior offering manager, trade and supply chain at CGI, these stricter regulatory risk requirements have caused some banks to consider retrenching from structured/ commodity trade finance.

“There is huge capacity for growth in this business – particularly across emerging markets where all kinds of commodity trades are being supported by structured/commodity trade finance,” he says, but notes that banks have to play off this potential against the higher regulatory requirements.

“Tighter control and better visibility are now mandatory for those players that want to stay in this business and grow it.”

CGI’s new collateral management solution is expected to address these needs by offering automated capabilities for the capture of deal data and collateral details as well as collateral management.  Its key features also include automatic revaluation of collateral using market feeds and automatic reconciliation with collateral manager feeds alongside powerful reporting.

While the initial focus is on the collateral used in structured/commodity trade finance deals, the new capabilities can be used for multiple types of collateral.

According to CGI, existing bank users of CGI Trade360, which deploy the new collateral management capabilities can secure massive cost savings.

“It would cost them a few million dollars if they were to invest in one of the standalone collateral management solutions on the marketplace. They would not only have to consider the licence fee but the cost of integrating and running the solution – and the working effort and cost of time this involves,” says Tezzi. “Our solution is a higher value proposition because it is simply ‘plug and play.’ There is no big license fee nor additional costs – users only need to pay for the transactions they use it for.”

“When it comes to collateral management, investing in a standalone solution just does not make sense,” adds Carswell.  “Our solution enables automated collateral management functionality to be fitted in seamlessly with the letter of credit, finance and other trade finance capabilities already  used by our client banks for their structured/commodity trade finance.”

At present 11 banks operating in 80 countries in 130 locations rely on CGI Trade360 as a global trade finance platform and numbers are growing. Over the last 18 months, four banks have gone live with it.