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GTR Leaders in Trade 2023: The winners

The Trade Finance Distribution Initiative, an industry-wide collaboration to standardise trade finance distribution, has expanded with five new members, bringing its membership to 19 financial institutions.

The new additions include ABN Amro, Commonwealth Bank of Australia, Crown Agents Bank, London Forfaiting Company and Natixis.

They join some of the world’s largest trade finance banks, including ANZ, Crédit Agricole, Deutsche Bank, HSBC, ING, Lloyds Bank, Rabobank, Standard Bank, Standard Chartered and SMBC, as well as four other banks that have not been named, who have been part of the project since it was formed.

Launched in April, the TFD Initiative is bringing industry players together to create common standards and definitions for trade finance distribution.

Apart from the member banks, the ICC UK and the International Trade and Forfaiting Association (ITFA) are taking part as observers.

The aim is to attract more non-bank investors to the asset class, thereby giving banks more capacity to originate new trade finance lending. It is led by Tradeteq, a technology platform launched last year, on which banks and institutional investors can transact trade assets.

Speaking to GTR at the time of the launch, Christoph Gugelmann, founder and CEO of Tradeteq, explained the motivation behind the initiative: “If you think in terms of the structured credit world, there is a market for any bank product out there other than trade finance. You can purchase mortgage-backed securities, credit card debt, auto loans, anything which a bank provides, right now, this second. You cannot do this today with trade finance. But now that trade finance is being more digitalised, there is no reason why that asset class should not be available.”

While trade finance has traditionally been a business for banks only, it presents a compelling multi-trillion-dollar investment opportunity for institutional investors seeking sources of attractive risk-adjusted returns with low correlation to stocks or bonds.

“By opening up the asset class and making it more accessible outside of the traditional banking world, the TFD Initiative is, in essence, creating a fairer playing field, where non-bank investors can also benefit from the excellent risk/reward opportunities presented by trade finance assets,” says Duarte Pedreira, head of trade finance at Crown Agents Bank, commenting on the bank’s decision to join the initiative.

Simon Lay, CEO at London Forfaiting Company, adds that the addition of new members highlights a “growing interest to establish trade finance as a liquid and scaleable asset class to a new investor pool”.

“We all stand to gain by increasing collaboration, leveraging new technologies and adopting standardised processes in the trade finance space,” he says.

The TFD Initiative is mainly focusing on open account trade finance, initially payables and receivables. Tradeteq is currently working on proofs of concepts with the member banks and expects that, in the second half of 2019, it will be ready to commercially implement its solution with the first banks.

“We are providing the solution – the repackaging infrastructure, documentation, data analytics – and now the industry is figuring out if we are missing something,” Gugelmann said. “Are there processes which needs to be defined, does the language need to be changed? They will create a market such that if an investor walks in the door of any of these banks, they can expect to have a similar type of reporting, a similar type of legal language of any notes that they purchase, and a similar user experience.”