GTR gathered a group of leading trade, commodity and export financiers in Singapore to discuss the key issues keeping them busy today, and what will most likely be on their desks tomorrow.
Cox: What are the key areas keeping you busy, and what is worrying you about the future?
Kow: From a JP Morgan perspective, there have been increasing regulatory demands and constraints. There are lots of different interpretations as to what they mean for different banks. We have been very focused to make sure all these regulatory costs, etc have been accounted for. We try to comply with Basel III requirements, and that is part of our models right now, as they stand. That has been really critical for us in terms of how much time and management is now spent on regulatory matters alone. What we are trying to do to counter that is to make sure we listen to and understand what the client wants a bit better, so that we can ensure we are committed to providing financing and products that suit the client’s needs, at the same time as not letting costs be the main driver for any of this.
Parry: The cost of regulatory compliance is the key. It is about how we make sure that the products we have today and the pricing models and systems that we build tomorrow make us as effective as possible, so we do not out-price our services, as a bank or as a business. Some of that is in the capital costs and liquidity costs, but some of it is in the operational costs as well. Anecdotally, some banks have mentioned in the last couple of weeks that their targets have increased this year as a result of having to make up for regulatory fines they are paying. That is a very direct impact of the cost of regulatory requirements, and quite an extreme one.
Hang: I agree. Today, there are heightened regulatory requirements, not only in terms of Basel III but also sanction matters, and there are cost-managing processes to make sure we meet those regulatory requirements. These are very critical for our business as banks deal only in documents. It makes it very important that your systems and procedures are robust enough to ensure you meet all regulatory requirements. All of that adds to costs.
Kow: Historically, in banking, higher risk or cost is reflected in higher pricing; now, however, it is not so much the case. That is really the new dimension we are seeing right now.
Hang: What is driving pricing down is liquidity in the market. The trade pie is not getting any bigger. Competition amongst banks to grow their trade asset is intense as greater focus is now on transaction banking. What is also adding to this is the lack of transparency between banks on pricing. Most of us rely on customers’ feedback on pricing given by other banks. As we ramp-up our trade and commodities business, all of us are competing for the same customers, in the same segment. For us it is important to balance pricing with the other business they do with us, volume and sustainability.
Tay: That brings us to the point on how much can we rely on market feedback from customers and competitors in regards to pricing. I think it is a delicate balance in managing customers’ expectations and meeting the internal hurdle rate. Sometimes, it is a bit tricky in this space. Pricing is dynamic and may also depend on the nature of the underlying transaction. Are these genuine trade transactions with physical flow of goods or financial structures?
Westpac is in a growth mode, so we are doing a lot of new business. First, we try to deepen the wallet-size within our existing customers, and also acquire new clients. Our existing client base, new client acquisition and rolling out new products has been keeping us very busy. As an Australian bank our key strength in Australia is dealing with customers in the natural resources market; for example, agribusiness and mining. We are doing very well in Australia and are trying to replicate that strength in Asia, which is also keeping us quite busy. As you know, Australian regulations can be very different to those in Asia.
In terms of tomorrow, personally I think it is operations. We have been discussing regulatory framework and so on, so an operations team that truly understands the trade business is very important. We need an operations team that has a mindset aligned with today’s environment rather than thinking of operations as a mechanical process. That is pretty worrying. If the standard operating procedure is tweaked too much or if there are too many assumptions in the processes, we go back to issues pertaining to compliance, reputational and operational risks and how to mitigate those risks to ensure sustainability.
Parry: I will perhaps touch on price, because I am sure it is on all of our minds, given that it has a direct impact on how successful we and our teams are today. What I tend to reflect on when we go into transactions is why we are in those transactions. If there is a very good reason to be in the transaction in the first place, pricing is only one element of whether you do that deal. I think most banks have moved to a relationship-led model. There are not many that openly admit they are just trying to find the best deals at the right price. As the pricing goes down then, it may get more painful, but the story probably does not change. You are in it for a strategic reason, typically with strategic clients.
What it forces us to do is to be a bit more thoughtful about how much of it we do or how well our models are set up to get the best returns. We also need some healthy internal discussions about whether the balance of business with this client is what it should be. This is an important component and you cannot really pick and choose; to some degree, you can, but you have to do the good bits and the bad bits. If it is for the right reasons, however, it is probably okay. It just fast-forwards the discussions that you have with your clients around what you are doing for them, such as the cross-sell. Most clients are well aware of that conversation now, and they are open to it. If you have value to add there, they will work with you.
Ranta: It is very much the same story for me: it is all about leveraging the customer relationship and doing more with them, namely cross-selling. Although I would like to look at individual transactions on their own merits, at the end of the day the decision is made as to whether it fits that particular customer’s needs. Because of that, the focus is very much on leveraging the customer network and customer connections that we have. Luckily, we are now in the sixth year of ANZ’s super-regional strategy with Asia being a core part of bank’s strategy, and our market position and market share has significantly increased. That is still what is keeping us busy: getting more business out of the existing network.
Parry: Do you think that customers are getting used to those discussions now? My impressions are that they are, but I am looking at only a fairly narrow band of clients.
Ranta: It does depend a little from country to country and from customer to customer. In terms of international customers with an international mindset, there is no surprise. But, a state-owned enterprise (SOE) in Vietnam is not quite there yet. I think they understand the concept but look at matters from their own perspective, in terms of what their restrictions and priorities are. There are still enough banks such that deals will get done.
Cox: Are you are seeing more new entrants to the structured trade finance (STF) market, and is that something that is happening in Asia?
Sarjan: I do wonder whether the Asia trade pie is getting smaller or is simply static. This is not the case from my institution’s point of view – the pie is clearly growing. Asia is now the commodities hub; credit insurance is moving here big time; global commodities firms are shifting from west to east to set up headquarters. Given this backdrop, I would argue that, at least for this region, the pie is getting bigger. Furthermore, client demand is becoming more complex and is ever-changing.
I look at structured trade finance as a dynamic market. It is a product set that continues to evolve rapidly from a client dynamic point of view. In terms of the internal dimensions, I agree that strategic clients are very important. In terms of the product line, we as trade are saying: ‘We want to do this’ and ‘We want to do that.’ The internal dynamic in terms of the overall region is critical too. As an institution, we are trying to balance all of those things to see whether a 65 or 60 basis points (bps) deal makes sense as the right placement of risk for that particular client. It is a fascinating, dynamic product and to reiterate, I’m convinced the pie is still growing.
Madhavan: I would echo that. I want to put a few things on the table. First, I think there are conflicting constraints. We touched upon operations and the need for standardisation versus customisation. Last time I checked, Standard Chartered had more than 6% of Swift’s volume, so you can imagine what that translates into in terms of the sheer number of transactions around our network in Asia, Africa and the Middle East. If we tried to do that in a customised way, things would grind to a halt. At the same time, what was said about customisation and the fact that you need to customise is also a reality. That is one conversation going on.
The other one is in regards to return on capital. The question is how do we have a conversation with the client? We have something that we call value-added trade, which straddles traditional as well as open-account trade. What we have realised is that it could meet the same client need for, say, an import loan, but you need to have certain robust conversations with the client, whereby you can convince the person that assigning the receivable is alright. It is a mechanism whereby it means some additional hassle to the client, but if they were able to help us improve our return on capital and return on assets, consequently it would offer them some value in terms of lower price. This is a second dynamic happening around the network in conversations with clients. It is a continuous conversation.
A third point is on the regulatory aspect. My only comment would be about the potential for conflicting regulations. I can give you specific examples of where there are conflicts. I am sure that regulators are meeting in rooms such as this and comparing notes. If they did that, it would be good for the industry, as well as for them. For example, the Reserve Bank of India has given approval for another 10 private banks to enter the market. I would assume that banking in India is fairly mature and a question exists as to whether there is space for another 10 banks. They are going to be going for the same customers, and you know what will happen to pricing.
Those, then, are the three things, and they are enough to keep any of us awake at night.
On the other hand, the opportunity is huge. If the team is right and there is alignment in terms of assigning investment across systems, processes and people, a lot can be realised. I was speaking to someone this morning from Swift and said that the only other region that could claim to have a better growth rate than Asia would be Africa. Frankly, Africa is still nascent with huge growth potential, so we are in the best place.
Cox: A big part of the growth in Africa is Chinese investment.
Madhavan: China is going into Africa, as is some of the Middle East. What you are saying is true, however. It is driven by growth within Asia.
Hang: At OCBC we cannot go for standardisation. There is no ‘one size fits all’ because we are such a big, diverse bank, with mass-market customers. We bank both very large corporates and very small SMEs. For every two new accounts opened in Singapore, at least one is with us. We look at the lifecycle of a company, and we tailor-make our trade products according to that lifecycle. For example, we grow very small SMEs on a programme basis, so that we do not have to go for individual writing of credit proposals or transactional approval. For very large commodity houses and big players, we go for customisation. Even in terms of servicing, it is different. In terms of pricing, it also very much depends on the lifecycle of the company. A very small company demands more servicing, training and attention, so they are willing to pay. The very big corporates are better for cross-sales.
Parry: You have to have a model that is driven by the business you want to do, not an outcome driven by the model that you want.
Tay: Whether that finally meets the customer’s expectations and makes them happy is another key issue.
Parry: A lot of banks forget that linkage. The outcome is the business, but the model should not dictate the outcome. It should support the outcome that you want. In terms of what worries me about tomorrow, I am sure that we all think it is a great time for our industry at the moment, because we are in the limelight and seen as a pretty good product. There is growth, and people and businesses are investing. The cycle will, however, change again, and investment banking and the more exciting and glamorous elements of finance will come back. Have we done enough, or is there anything else we could as an industry, while we have this spotlight on us? Individually, we are very busy but, as an industry, have we consolidated that position of strength or are there things we can still do before the pendulum swings back again?
Madhavan: Let me use an example to highlight that point. I do not know when the International Swaps and Derivatives Association (ISDA) derivatives agreement was made. Let us say 10 or 15 years. One could argue that that was a great tool to increase origination, because the client conversation is simple and has no room for negotiation. Let us think about a receivables purchase agreement (RPA). Each of us has a different agreement, and if truth be told, it is a different conversation. To your point, when the spotlight is on us, maybe one of the things that we can do as an industry is to have an industry RPA. All of us have the same concerns and requirements, and the conversation with the client is that this is an industry RPA.
Ranta: It would be more balanced. At least one would have some clout to say that everyone agrees.
Cox: That would require a move from the mindset of where the banks use their documentation as a way of distinguishing themselves from their competitors to everyone getting together and agreeing that the market will all use standardised documentation.
Sarjan: As part of Baft-Ifsa’s financial supply chain committee, I would encourage everyone in this room to join us – we all share common objectives. There are two things we are trying to do here: one is the development of a standardised practitioners’ guide for Asia Pacific for trade finance, and two, create and enhance industry workstreams. On both projects, we would really welcome any insights as an industry.
To the point that was made very well, I think ISDA brought about standardisation in the swaps platform. It made the industry more standardised. It reduced risks. It did away with people arguing with each other on every clause. The same thing happened on the trade distribution side with the Baft standard master risk participation agreement, which is what we are working towards now. The big question is whether it can be done across Asia Pacific. Should we choose just one exporter country and one importer country? Those are the issues we need to dimension, but if we can come to one particular standardised RPA and make that into a Baft-Ifsa standard or weight it by GTR as a thought leader around the trade finance community, it would be very powerful.
Parry: Given that, through organisations like Baft, those things have been very positive, maybe we ought to try to elevate the Baft-type organisations even further, to get them a bigger seat at the table with government negotiations or capital committees. I think they are getting there and they do a phenomenal job, but can we push them even further on while we have this window? We could then leverage that in the future.
Madhavan: It is a very good point. There is a spotlight on transaction banking per se. I have a feeling that, if you asked for something, our organisations are likely to be heard more than in 2007. Leading to the next topic, this is an example of the enablers that we as an industry can put in place to prepare ourselves for some of the changes. We spoke about the growth opportunity in Asia, and let me share a statistic. Until halfway through last year, the number of letters of credit (LCs) issued had broadly remained flat. If you see Swift volumes, it had broadly remained flat. It just increased in January this year. Trade has increased but Swift has remained flat, which can only mean one thing – that corporates are moving from documentary trade to open account trade. There are corporates in our footprint that are doing trade with African markets, where they are on LC and are trying to see how to move into open account. I was told we are just trying to come up with a guide to the terminology, because there is no standardised terminology in supply chain finance. If somebody says something, it means different things in different places, the classic example being ‘receivables finance’ and ‘factoring’. If we could come up with some standardisation, I feel that, as an industry, we would be better equipped to meet the needs of corporates that choose to move to open account.
Cox: I totally agree with that. I see these receivable purchase transactions coming across my desk on a regular basis. There is a significant variation in terms of documentation and approach from the different banks in the market. Of all the areas that could benefit from standardisation, I would think that receivable purchase structures are definitely one. I also think that, in this part of the world, we have to deal with so many different jurisdictions around the Asia Pacific region. Even within Asia, there is such a variety in terms of the way that the local laws interpret products.
Sarjan: Indeed, it’s not a straightforward process in anyone’s language. One of the things that Baft is trying to do is get a consistent forum back again. We had our first meeting for this year. We have agreed what our priorities and objectives for this year are. I am unabashedly trying to syndicate participation in that. We would certainly like all the banks here to participate in that. We have a subgroup within that committee for the RPA, which one of the banks is running. We wanted Bank of America Merrill Lynch’s legal team to be part of that legal subgroup as well. If we could get them to give us some support, it would present a strong case.
However, I do agree that receivable purchase transactions are complex. Every bank has its own views. To the point raised around whether it is receivable finance or factoring, it is different in different industry types. There are a variety of elements in the mix that we need to put into a succinct form and ask: ‘Is there a particular aspect of it that you want to tackle?’ Clearly, it is not going to happen overnight but can we make a standard available? We spoke about Isda, which was done 12 or 15 years ago. We spoke about the RPA, which was done five or seven years ago. There is no third one, so this would be very powerful.
Cox: Moving on, what is our industry’s new and next big story?
I thought it might be interesting if we touched on some of the new markets in Asia and whether they are at all relevant to your businesses; in particular, I was thinking of places like Mongolia and Myanmar. You may comment on the importance of India to what we are doing, or any other jurisdictions you think relevant.
Tay: A colleague and I just had a very interesting trip to Mongolia. From a business perspective, mining in Mongolia is exciting. The other area is the Golden Triangle, including Myanmar and Laos. It is getting quite exciting there too. Speaking to some banks in Thailand around May last year, I was given to understand that some are already going to Laos, Cambodia, Myanmar, etc to set up at least a rep office, if not a branch.
In terms of products, bank payment obligations (BPOs) and paperless trade may be things that all of us should be excited about. Paperless trade has been in the pipeline for years, if not decades, and the key thing holding the industry back is the bill of lading. It continues to be the case today. If someone can come up with a brilliant idea on how to make the bill of lading paperless, that would be a spot-on solution to make the whole process paperless.
A paperless environment will make the process much more efficient. With customers these days wanting a quick turnaround in terms of processes, going paperless is one way to approach it. Customers are increasingly demanding shorter processing turnaround. This is rightly so, because with advanced technology, goods are arriving at the ports ahead of the shipping documents. I observe a trend with preference to measure processing turnaround by hours rather than days, so going paperless and keeping it straight-through processing (STP) and electronic will be the only solution.
Madhavan: At the risk of being a little controversial, the e-bill of lading has been on the cards for some time. In fact, I think Bolero patented an e-bill of lading early in 2013. Immediately after that, within two months, ESS did an electronic bill of lading between the US and Mexico. My feeling is that an electronic bill of lading is going to be very difficult in our footprint of Asia. Ultimately, will the goods be released from the particular port without a physical paper document? What is very interesting and credible and which we need to talk about, is the client’s need for a quicker turnaround and, somehow, move away from paper documents, which brings us to the BPO.
You are right about Mongolia and Myanmar, and we are setting up representative offices in both of these locations. That is something that Standard Chartered does well. We are opening rep offices in Mozambique and a full-fledged branch in Angola. These are Portuguese-speaking countries, but we are there. We opened a rep office in Angola four years ago, and a branch will be opened this year.
One of my colleagues was invited to the UK by a minister to talk about what to do with trade in Myanmar. The minister wanted to know what he did with open account, which brings me to another aspect.
I feel that, when we look at new markets, we say: ‘These are new markets.’ The reality is that Sri Lanka, Bangladesh and Pakistan are also new markets, and I will tell you why: frankly, for the last 20 years, Pakistan was open to the world but it did not allow open account. It is, then, a new market for open account business. Bangladesh has been doing simple trade in garments for the masses of the world. They are simple exports but they have to be LC-backed. The supplier on the ground in Bangladesh can get pre-shipment financing only if there is an LC. New markets are not just a geographic play but also a market play in a particular market. That then brings us to BPOs, because, in my view, they would be the answer to the need of clients for paperless trade. If you think of it, a BPO is a completely new financial instrument.
Tay: BPO is a bank-to-bank arrangement. We still need to figure out how to price it and how to pass on the benefit of a BPO to corporate clients.
Madhavan: It is a new payment term. I think the International Chamber of Commerce (ICC) has changed its international draft contract, which now allows for four forms of payment terms: LC, open account, advance payment and BPO. BPO is a new payment term that moves away from documents and towards data-matching. In the end, when banks have physical pieces of paper coming in, we look only at the data. We have in our terms and conditions everything to say that, if there is any fraud in this, we can’t be held accountable, so let us just move to data. I feel that BPOs will address that need, because it will allow the physical documents to be sent directly by the supplier to the buyer. UCP 600 allows for two days at each bank, so the documents go from the seller to the seller’s bank in two days, and are couriered to the buyer’s bank in two days. If you are shipping palm oil from Indonesia, however, it takes one day and the shipment is already here.
Tay: That is why the demand for aggressive document turnaround is real. I fully empathise with our customers.
Madhavan: Exactly, and that is why I feel that the BPO is one such opportunity. In terms of open account, it is about corporates trying to get operational efficiency while wanting payment risk mitigation, which is why, again, the BPO comes into it.
Cox: Speaking as a lawyer, when you move to paperless systems – the BPO is an obvious example, as is the discussion about perhaps, in the future, having a paperless bill of lading – the problem we face is that the legal systems are laggards and very slow to keep up with the industry innovation. A lot of work we have to do is to try to find ways to allow the banks to roll out these paperless instruments in jurisdictions where the legal regime will not necessarily prohibit it but it will just not understand what you are trying to do.
Tay: We know, but there needs to be a solution if we want to go totally paperless for trade. That is the aspiration, but it is a key challenge.
Parry: As an industry, I do worry that we are still quite reactive. The things we are resolving now – and they take a long time because of legal and historical practice – are things we probably could have seen coming. We are all very busy doing what we do, but if we were able to form a view on what the world is going to be like in 50 years’ time, and what that means for our industry.
If you look across the geopolitical landscape in 100 years’ time and some of the big events that could and will happen and which will change the world, we want to be relevant to it as a business. This is probably not for us but for our children’s children, but I would be interested to get views on that. If you gave trade to Google and a bunch of university graduates, how would they design trade and what would it look like? I would bet that it would be nothing like what we do now.
Madhavan: You raise a good point. Let me use an example that I read in The Economist. This is about merchant financing. I believe that AliPay has a book of about US$5bn, because they are financing the merchants selling in the eBay equivalent in China. To your question about Google, I am sure that some 25-year-old kid straight out of college would say they could do it and if truth be told, they just might.
Parry: When PayPal came about, it was a direct competitor for banks. I am sure banks had the jump on technology and on market intelligence. We had a history of doing that, yet there was still a space for these sorts of things that come up. If something were to come into our industry, it might take some time, but we should not believe we are secure in what we do forever. Things change and you can get overtaken. I think our industry is slow to react, and legal is one aspect, but there are many others too. It is probably more philosophically interesting than reality for us at the moment.
I think our industry will struggle to stay as relevant as it is today, and we are already struggling a little. That is why we are forced into things like the BPO and forced to consider turnaround times. These are not things that we should be forced into; ideally, we should be ahead of and leading the client and saying: ‘We can do this. This is the way to make your business more effective.’ Although we are still reactive, we are getting better, but we are too slow.
Ranta: Then again, how does one make payments? In some markets, cheques are still being used; while in others, it is either cash or credit cards. Why not just use electronic payments? Do you need cash in the future? Why do you need these instruments? The regulators have a large role in determining the future, and I am just thinking about how many jurisdictions there are in Asia. It is still very complex.
Kow: I think it all boils down to regulatory requirements in each jurisdiction. You have trade, which is an underlying flow, but it is cross-border. You then have all these complexities and legal requirements within each jurisdiction, which is why you say we are reactive, but I think we will always be reactive, if you think about the definition of trade, unfortunately.
Madhavan: My thoughts are that the banking industry has stagnated a little in terms of innovation. We have met specific financing needs in terms of facilitating global trade, transactional services and settlements, but we are old boys now and some of us are greying. We have evolved our business models to meet these needs over the years, but we aren’t coming out with drastically new and exciting products. We have a role to play in big value and in 30 or 60 days. There will also be need for one-day coffee at Starbucks, and there will be players who come along to satisfy that need. In cash management, this question is similar to the idea of banking the unbanked. My submission would be that we satisfy the needs of a set of corporates and retail customers, and there are other retail customers whose needs are matched by mobile banking and the M-PESAs of the world – the value transfer networks. Both will be there. I do not know whether we should be threatened by each other.
Parry: What I wonder is whether, increasingly, the very big, sophisticated corporates tell us what we should do: ‘This is what we need. You build it and we will buy it from you.’ Should it not be that we are at least on top of that and ahead of that in some cases? I do not think we are. I think we are comfortable being led. Generally, we are led by large, sophisticated industries that tell us what they need from us as a service provider. In the new regulatory world, where we are a bit more conservative, maybe that is okay, but that is where we are.
Hang: What do you think about renminbi cross-border trade? Almost every day we see something about this. Since the internationalisation of the renminbi in 2009, we are seeing increased demand from customers and a growing trend to accept the Rmb as an alternative currency. To meet customers’ trading needs various product structures have been implemented to either help them hedge fully or partially any foreign exchange risks.
Parry: Do you think that is okay? As a utility and a service provider, is that the right role for us? Is that our next big story? We are quite a safe industry because we are not leading the way; we are just doing what is already there and servicing it as a good utility provider.
Hang: I suppose if we could be more proactive we could have the first-mover advantage, but it is easy to copy.
Sarjan: I have a different view on renminbi internationalisation. I have followed Hong Kong closely for the last five years. Trade is certainly one dimension of it, but it goes far beyond trade, as we know. It is one sign of the banking industry having played a leading role in innovating with China. The products we are designing across the entire bank, and not just in the trade finance area, are quite leading and cutting-edge in the market in terms of what is required by our clients. I would cite the internationalisation of the renminbi, which started being traded in July 2009, as something that we have partnered with China to do, as an industry, quite well, I think.
Parry: Banks around this table have and will continue to be able to influence our industries’ future. There are certain things that are more difficult to do and take a lot longer, but you can shape the landscape if you have the vision and drive and you believe it is something that other people can get behind. There are a number of success stories that industry has, whether it is capital management, documentation, regulatory engagement or the renminbi. I am deliberately being controversial because I wanted to provoke some of those responses, but things are not that bad.
Sarjan: Let me focus on the structured trade area. Sinosure is constantly evolving. If you look at the US Exim construct, they have a regular calendar in terms of bond placements now, with US Exim guaranteeing, providing cover on the transaction. There have been more than 60 deals completed so far. I would say that these are all signs of innovation. You could not have a more participative, partnering institution, to my mind, than Sinosure and the US Exim-type of players, who are willing to work with the banks in asking: ‘What is needed? What is important for our countries? How will we get this together?’ I am making it simplistic and there is a lot more depth behind it, but we have found legal gaps in documentation and they have gone in and said: ‘We never thought about that.’
Ranta: Certainly, Sinosure is trying to be very proactive in coming up with products and programmes. They are also willing to talk about how to make it workable. You cannot always make everything work for everyone, such as programmes that are designed for exporters and whether a bank can become a beneficiary in those. This creates an interesting tripartite arrangement, but there surely is a reason for the structure. But if one looks at the volumes of how much of the short-term business Sinosure is supporting, it is probably fair to assume that the majority is with Chinese banks. International banks are scraping the outskirts of the bigger trade pie, but I agree that export credit agencies (ECAs) have become more innovative and proactive. In terms of alternative liquidity pools, whether it is direct lending by ECAs or debt capital market instruments, there have been big changes in recent years, and I think this will continue. What is fascinating is that, in terms of liquidity, for example, the swings have been so large. If we look back a couple of years, the liquidity premiums do not seem as volatile as after global financial crisis.
Parry: That is an area where I think the banks have reacted well. They have done a good job. The role of banks used to be borrowing and lending money, but now you do not necessarily have to be the lender; you can be an arranger of finance, whether it is securitisation or pools of liquidity. For our industry, what are we always going to have to provide to our clients, so that we understand those things? It is probably risk coverage and it is almost certainly liquidity, as a provider and maybe not as the lender. It is then about operational efficiency. I think we are working around the fringes of that operational efficiency.
Ranta: It is about system integrity.
We are independent.
Madhavan: If you asked the regulators, I think they would look at us as gatekeepers for money laundering.
Ranta: It is about regulatory approval.
Madhavan: We touched on this earlier. This business is under a lot of scrutiny. It’s only a matter of time until someone could expect regulators to say that we need to have accountability for the end state of the goods. It may go into Dubai, but is it good enough for you that you are happy to leave it at Dubai? Geoff, you made a point about clients’ needs around liquidity, risk mitigation and operational efficiency…
Parry: It is about how you gear up for those things. If we assume that those are likely to be constants, you can think about what it means to not necessarily have to be the provider for all aspects. For example, banks have outsourced certain parts of their activities, such as operations. We are starting to do the same with liquidity and with credit, so we are already doing that. Where is the next stage?
Cox: I was going to point out the irony that the banking industry is under so much scrutiny at the moment, but our product – structured trade finance – is a stable product that has come through the financial crisis in good shape.
This roundtable was kindly hosted at National Australia Bank, Singapore.