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The International Trade and Forfaiting Association (ITFA) has launched a new master risk participation agreement (MRPA) for unfunded participations in a variety of trade finance transactions where documents like guarantees or surety bonds are used by participants. The document is aimed primarily at the co-operation between banks and insurance companies.

According to Silja Calac, ITFA board member and head of its insurance committee, the new MRPA comes on the back of requests from the association’s members for more standardised documentation in this particular area.

Template master participation agreements help the industry standardise risk participation documentation for trade finance transactions and assist banks, government bodies and investors in better utilising trade finance assets. The advantage of such a framework documentation is that it reduces the need to carry out much of the expensive and onerous groundwork in ensuring an agreement meets capital rules requirements and other regulatory compliance.

The release of the unfunded MRPA follows an update to the New York MPA, published by the Bankers Association for Finance and Trade (Baft) in tandem with ITFA in May 2019, which serves as the industry standard for secondary market transactions under New York law, to facilitate the buying and selling of trade finance-related assets globally.

The New York MPA in turn closely followed the revised English law MPA in September 2018, which was published with detailed guidance for users and updated the original Baft MPA published in 2008 to reflect the ever changing legal, regulatory and market landscapes.

International law firm Sullivan advised ITFA’s working group on the launch of the new unfunded MRPA and the accompanying user guidelines, published at ITFA’s annual conference last week, and will be issuing a capital requirements regulation (CRR)-compliant legal opinion shortly.

Geoffrey Wynne, head of the firm’s trade and export finance group and its London office, comments on the work: “Following the major updates to the New York and English law Baft MPAs in 2018/19, this new document will help banks and insurance companies to collaborate and better understand risk mitigation of trade finance assets, whether they are a seller or a participant in the market.”

The new MRPA closely follows the 2018 English law MPA and is similar in that it is a two-way agreement whereby either party can adopt the role of ‘seller’ or ‘participant’. Affiliates and branches of these two master parties are then free to conclude individual participation agreements without signing a separate master agreement.

One of the major differences from the Baft MPA is the introduction of terms specific to ‘instrument facilities’, which allows the seller to mitigate risks arising out of facilities for the issuance of payment instruments, such as guarantees, bonds and standby letters of credit, and the purchasing of receivables.

Unlike the Baft MPA, the new document does not cover funded participations, but there are provisions which are to be used to reflect participations once funded.

Speaking at the ITFA conference, Wynne stressed that there is “nothing wrong” with the 2018 Baft MPA, but noted that the new document has a “very specific way of dealing with unfunded participations”.

“It’s designed to essentially facilitate the issuance of a guarantee by a participant – but there are a wide range of possibilities that you can use it for,” he said.

Wynne added that the document is intended to be available to more parties than the Baft MPA, which is much more bank-centric. “Particularly so for the insurance market, it’s more focused on the participant, and the idea with that is to enable more parties who want to provide risk mitigation to come into this sort of transaction.”

ITFA has published details on the new MRPA for its members on its website, together with a mark-up against the standard 2018 Baft agreement for comparison and ease of understanding.