'Smart' data sharing is the only way to stop trade-based financial crime
We live in a world where data is highly valuable and fiercely protected, and rightly so. The commercial value of trade data held by banks is immense. But in its current state, living across disconnected organizations, these islands of data have left large gaps in our understanding of trade and ability to reduce financial crime, writes Mike Barbary, SVP of Global Strategy at TradeSun.
Global trade finance is inherently complex: a single transaction can involve several stakeholders spanning multiple jurisdictions and over 100 pieces of paper, according to the International Chamber of Commerce (ICC).
Perhaps unsurprisingly, using decades-old legacy systems and stacks of complex and non-standard paper documents, the trade finance industry has struggled to transform digitally, embracing data analytics to enhance efficiency and thwart financial crime.
The treasure that is locked within these stacks paper is the valuable business data that banks need to use to trade smarter and faster. “Everyone wants to go digital. Right now, there is a lot of paper, so it’s about getting the data off the paper,” said Merlin Dowse, of JP Morgan, on a panel I took part in for the Bankers Association for Finance and Trade’s (BAFT) Annual Global Meeting in Washington, DC last week.
With what the ICC estimates are four billion pages of documents circulating in trade – accurate extraction and standardization of data are essential. Trade finance processing has long been completed manually and without the use of sophisticated technology, but as compliance pressure grows and criminals increasingly exploit trade’s vulnerabilities, a lack of standards are causing banks to fall short of regulatory expectations.
Today, the only effective way to examine growing volumes of trade documents is with technology – and incorporating strong data-sharing principles into this supports the formation of an intelligent ecosystem that can detect and intercept illicit acts in flight.
We live in a world where data is highly valuable and fiercely protected, and rightly so. Indeed, attendees from last week’s annual BAFT conference said the biggest challenges to data sharing are legal, ethical and compliance hurdles. The question of how data can be shared “smartly” while still being anonymized and protected, as well as aggregated to show patterns of potential illicit activity, can only be answered with technology.
It is encouraging that in some countries, including Singapore and the UAE for example, public/private partnerships are being established where governmental agencies and banks are able to share anonymized data and store for general use, but these are siloed in nature focusing on a specific region and group of members. It is now time to broaden these initiatives and bring in technology companies, taking advantage of their experience and technical skills.
Working with the top banks in trade has challenged technology companies, like TradeSun, to show financial institutions and other stakeholders – very transparently – data collection requirements, purposes, and methodologies. Know Your Vendor, or KYV, plays a crucial role for large institutions and corporates that hold valuable data.
Without data sharing in trade that allows banks to learn from others’ mistakes, risks may prove significant. In order for banks to agree to lend their data to collaborate and share insights with other banks, to prevent and intercept patterns of fraud, solutions providers must be able to warrant the absolute anonymity over the details of which of their banking customers’ trade transactions have gone awry. And this compromise cannot come soon enough: over the last few years, there has been growing pressure on banks and corporates to adhere to increasingly strict sanctions and anti-money laundering requirements, with authorities taking a zero-tolerance approach.
If you ask a banker, they will tell you that the risks that are unquantifiable are often the most concerning, and that is why some of the largest banks in trade have been working with technology companies to protect and enhance their trade processing and compliance workflows. At the same time, it’s clear that smaller banks must also progress – and it’s essential that tools are available to lenders of all sizes to avoid market fragmentation.
Data sharing will be pivotal in trade’s digital transformation, and barriers to data exchange can only be solved by leveraging technology that effectively anonymizes and protects shared sources of information. Stakeholders must be prepared to engage in “smart” data sharing to reduce financial crime and better detect and intercept illicit activities.