Trade finance bosses must act after regulator warning over crime controls

Stakeholders in trade finance have been warned by regulators over inadequate crime controls following several high-profile scandals. Nigel Hook, TradeSun’s Chief Executive Officer, explains why lenders need to deploy intelligent solutions that detect and intercept malign activities before any damage is done.

Last month, trade finance bosses were told by regulators that they must focus more on assessing the risks of economic crime in transactions, taking a more holistic approach that examines the bigger picture.

The UK’s Prudential Regulation Authority and the Financial Conduct Authority wrote to trade finance leaders urging them to advance risk assessments for financial crime. In the letter they acknowledge that in the past 18 months there have been several high-profile failures of commodity and trade finance firms with “significant financial loss”.

The regulators highlight several areas for action: risk assessment, they say, is too generic; counterparty analysis needs to include all parties with an interest in a transaction, adding that they had found instances where there was “no sensible” rationale for trades; and in transaction approval, a more structured approach is necessary.

It is a strongly worded note of caution to industry executives who must now act, or face further pressure, or worse, suffer potential failures within their crime controls. The latter potentially leading to hefty fines and reputational damage.

The recent collapse of companies in the trade and commodity finance sectors has shaken the foundations of our industry. The implosion of supply chain finance provider Greensill Capital earlier this year has left global banks exposed, scrambling to recoup funds, while a string of fraudulent activity in the commodities sector in Asia and the Middle East has prompted lenders to reassess their positions in commodity finance. Regulators are also cracking down. The United Arab Emirates fined 11 banks earlier this year for anti-money laundering failings.

A holistic approach

Lenders becoming nervous over recent scandals should not move to reduce their activity in the sector and leave companies unable to access credit, but rather carve out comprehensive risk processes that flag and intercept any warning signs of crime in transactions.

As the regulators outline, a generic approach is being taken in compliance. Warning signs are going undetected. They give the examples of dual-use goods and fraud, and reference money laundering, sanctions evasion and terrorist financing as areas that require a more complete approach by companies.

Lenders need intelligent and integrated real-time solutions that identify and intercept crime before any damage is done. By using such tools, the effectiveness of overall compliance functions is vastly improved, increasingly demanding regulatory requirements are met, and workers can focus on higher-value tasks.

TradeSun’s world-class platform enables users to put their compliance needs in one place – that is the beauty of integration and flexibility. With the solution, the somewhat arduous process of compliance is made simple, reducing risk and opening up opportunities for growth. The AI-powered platform can track vessels, complete fair price checks, as well as identify and intervene in potential trade-based money laundering through the automated checking of trade finance documents.

We are passionate about rooting out financial crime and allowing businesses, especially SMEs in emerging economies to prosper through the world of trade. Last year I was honored to become a lifetime member of the FBI Citizens Academy to liaise with law enforcement to investigate crimes and risks to US national security.

Positively, developments in trade such as the digitization of documents, the automated examination of documents (paper and digital) and digitized compliance processes are significantly reducing criminals’ ability to slip through the cracks. Furthermore, the shift towards a real-time compliance environment, in which solutions are deployed to intercept live transactions, is taking risk management to the next level.

The letter from regulators will serve as a stark warning to industry: act, or face consequences. Lenders cannot afford to risk taking a generic approach that glosses over key parts of compliance in trade. Now is the time for them to adopt trade specific solutions that reduce false positives and risks, and root out crime that is a cancer to our industry.


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