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Grappling with new economic uncertainty, the trade credit insurance industry is in a transformative phase.

The US market, in particular, presents unique opportunities and obstacles. With its vast economy yet relatively low adoption of trade credit insurance, it remains a largely untapped yet potentially troublesome market wrought with economic fluctuations, sophisticated fraud schemes, and changing regulations. 

To learn more about how the trade credit insurance industry is changing to meet these complex challenges, especially within the US, Trade Finance Global (TFG) spoke with James Daly, CEO of Allianz Trade – Americas.

Expansion and challenges of trade credit insurance in the US market

Despite being the largest economy in the world, the United States has historically been one of the least penetrated markets for trade credit insurance. As a comparison, in markets like Europe, the penetration rate of these instruments is around 15%, whereas in the US, it is a mere 2-3%.

Various factors contribute to this, including a general lack of awareness and businesses simply perceiving it as an unnecessary expense. Whatever the reason, it is clear that significant work remains to shift perceptions and introduce the benefits of trade credit insurance more widely.

The challenge is not only introducing the product to businesses but also communicating its value beyond risk transfer. 

Daly said, “A lot of our time in the US is spent being an evangelist for the product, trying to help our future customers understand what the product is and what benefit it brings to them inside their organisation. It’s not just a risk transfer. It has so many other dimensions to it.”

For example, trade credit insurance can be a tool for growth, supporting businesses in accessing finance, enhancing balance sheet efficiency, and even managing new markets. 

While penetration in the US remains low, there is optimism. Given the scale of its economy and the sheer number of businesses that could benefit from trade credit insurance, the significant upside of US market potential is evident. 

To capitalise, insurers are investing heavily in education and outreach, engaging with industry networks, and building awareness. For the market to grow, insurers will need to continue these efforts and make the value of trade credit insurance more tangible to business leaders across the country.

Impact of economic uncertainty and political factors on business risk

The last half-decade has seen heightened economic uncertainty, with contributing factors including fluctuating interest rates, the ongoing effects of the pandemic, and political volatility, such as the US election cycle. 

Economic uncertainty has, in fact, become the norm, creating a challenging environment for businesses. 

Daly said, “Right now, that level of uncertainty is tremendous. The Fed rate was at the top level for a number of years, and that in itself has created a huge stress within many organisations because when they built their business models, historically, they were built on different debt models, and those debt models just get more and more expensive.”

This environment has heightened the need for trade credit insurance as businesses seek additional support in managing risks they may not fully understand or foresee.

Trade credit insurance helps by offering a partnership, allowing businesses to benefit from the insurer’s expertise in risk assessment and economic forecasting. Insurers can act as an additional set of eyes, providing insights and warnings that help companies make informed decisions during turbulent times.

Rising fraud and the evolution of fraud detection

As economic pressures increase, so too does the prevalence of fraud. The trade credit insurance industry has seen a notable rise in fraudulent activities, ranging from invoice fraud to more sophisticated identity-based schemes. 

Daly said, “Fraud is not a new problem, but it does become more prevalent when times get tougher.” 

Several different types of fraud exist—deliberate criminal activities, opportunistic fraud, and cyber-driven identity fraud—all of which have become more sophisticated with technological advancements.

One of the significant challenges today is the advent of artificial intelligence and deep fake technology, which makes identity verification increasingly difficult. Fraudsters are using these tools to create highly convincing false documentation and invoices. 

The sophistication of these scams has reached the point where even seemingly authentic addresses or barcodes can be fake, designed to mislead suppliers into fulfilling fraudulent orders. To combat this changing threat, insurers are leveraging technology and vast data sets to proactively detect fraudulent activity. 

Trade credit insurers like Allianz are using their comprehensive databases, which include millions of trading records, to validate transactions and identify red flags before they lead to significant losses. 

Daly said, “We know people are trading with those companies. We’ve got those records. We can quickly see whether that invoice is valid, whether the company that is asking for payment is true, or if the person supplying it is who they’re saying they are.”

Insurers are also looking to foster greater collaboration within the industry, sharing insights and developing best practices for fraud prevention. The industry is increasingly recognising that tackling fraud will require a concerted, collective effort rather than isolated responses.

Regulatory developments and their influence on credit insurance demand

Regulatory changes are another driving force shaping trade credit insurance. In particular, the upcoming implementation of the US Basel Endgame, also known more widely as Basel 3.1, is set to impact the demand for credit insurance. 

The regulatory landscape in Europe has already demonstrated how significant an influence these rules can have. European banks have increasingly turned to trade credit insurance to optimise their risk management and meet regulatory requirements, leading to accelerated adoption of the product across the continent.

In the United States, the regulatory environment has traditionally not been as favourable towards the use of trade credit insurance for capital relief. However, with the anticipated Basel changes, US banks are beginning to take notice. 

Although they have historically been slower to adopt trade credit insurance for capital management purposes than their European counterparts, there is growing interest among stateside financial institutions. Banks are exploring the possibility of using credit insurance to reduce their capital requirements, especially as they prepare for the impending regulatory changes.

This shift presents an opportunity for the industry to further embed itself into the financial ecosystem. By providing banks with a means to optimise their capital allocation, trade credit insurers can enhance their role not just as risk mitigators but as strategic partners. 

Daly said, “American banks are using trade credit, but not in the same way as we see the proliferation in Europe. But I do see that changing. You can see the banks are preparing for that Basel Endgame right now.”

This development could ultimately lead to wider adoption and integration of trade credit insurance within the broader financial services industry in the United States.

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Faced with challenges such as low market penetration, economic uncertainty, sophisticated fraud, and regulatory changes, the trade credit insurance industry is adapting to meet the demands of an increasingly complex business landscape. 

By positioning itself as more than just a risk transfer mechanism, trade credit insurance is transforming into a strategic tool that provides stability in uncertain times and helps businesses through both economic and operational challenges.

Ultimately, the evolution of trade credit insurance is not just about mitigating risk—it is about enabling businesses to thrive in a world where uncertainty is increasingly the only certainty.

The post PODCAST | C-suite speaks: How trade credit insurance is adapting to US market anticipation appeared first on Trade Finance Global.

• The BexNote is a digital bill of exchange, and has been used at PwC Germany.
• It brings added flexibility and speeds up the transfer of funds.
• However, legislative requirements have slowed their pace of adoption.

The advent of digitalisation presents an opportunity to transform trade finance by addressing long-standing inefficiencies and one such innovation is a digital version of the bill of exchange called the BexNote. 

By digitising this fundamental trade finance instrument, the BexNote has the potential to streamline processes, reduce costs, and improve liquidity, especially in sectors like supply chain finance. 

To learn more about how the BexNote can transform trade finance, Trade Finance Global (TFG) spoke with Markus Rupprecht, Senior Executive Advisor for Trade and Supply Chain Finance at PwC Germany, and Michael Huertas, Global Financial Services Legal Leader at PwC Legal. 

The history and evolution of the bill of exchange

The bill of exchange was used in international trade as early as the 13th century, particularly amongst the Lombards of northern Italy. Merchants usually kept their money in banks across different cities. The bill of exchange allowed them to receive payment as soon as a seller shipped their goods by showing a signed bill of exchange to a banker.

Over time, the instrument became a cornerstone of trade finance, widely used by banks and companies across Europe, particularly in Germany. It allowed for the easy transfer of funds between parties and helped companies secure financing for large transactions. 

But as global trade has expanded and transactions become more complex, the bill of exchange’s paper-based nature has begun to show its limitations. Handling physical documents is cumbersome, and prone to errors or fraud. 

Rupprecht said, “Because of the cumbersomeness of handling paper, the bill of exchange has gone down in importance and is almost forgotten. Many young bankers today are unfamiliar with this tool.”

Yet, the fundamental concept behind the bill of exchange remains relevant. The challenge is to adapt it to the digital age. This is where the BexNote comes in—a modern, digitised solution that aims to overcome the inefficiencies of its paper-based predecessor.

The BexNote and its potential for digital transformation

The BexNote builds on the foundational principles of the bill of exchange, but with a crucial difference—it is entirely digital. 

One benefit of digitalisation is flexibility. With the BexNote, rather than a fixed payment due date, companies can integrate complex conditions into the payment structure. For example, rather than setting a payment date, a BexNote could trigger payments based on key performance indicators (KPIs) connected to specific events: the number of times a crane is lifted, for instance, or an aeroplane lands.

The BexNote also makes it quick and easy to transfer financial obligations. It can be sold or traded in much the same way that securities are exchanged in financial markets, making it fungible and enabling a broader range of investors to participate. 

Rupprecht said, “One of the beauties of the bill of exchange is that it doesn’t have to be a bank purchasing it. It can be a hedge fund, a pension fund, a family office, or you or me: if you have enough money in liquidity. 

“This characteristic opens up the whole industry, and it will democratise the way global trade-related money and trade-based lending is handled in the future.”

Perhaps the most important benefit of the BexNote is that it allows for real-time tracking and verification. This speeds up transaction processing, with improvements to cash flow and delays. The operational efficiencies of a fully digital instrument cannot be overstated, and the BexNote is set to revolutionise the way trade is conducted in the digital era.

If that sounds a little too good to be true, it might be because, under the current legislative environment in many jurisdictions, it kind of is… at least for now. 

Legal and regulatory obstacles to adoption

Huertas said, “A lot of legislative requirements in certain jurisdictions still very much hold paper in the highest regard.” Many jurisdictions still require paper documents and wet ink signatures, particularly for financial instruments like bills of exchange, presenting a hurdle for digital alternatives like the BexNote.

The legal landscape for bills of exchange in the European Union (EU) is particularly fragmented. Each member state maintains its own legal framework governing its use, many of which date back to the pre-EU era. This patchwork of laws makes it difficult for companies operating across borders to adopt a uniform digital solution.

However, there has been progress: European countries are in various stages of implementing the UNCITRAL Model Law on Electronic Transferable Records (MLETR), a framework designed to support the use of electronic records for trade finance that are functionally and legally equivalent to their paper-based counterparts and wet ink signatures. 

To increase MLETR adoption, stakeholders must collaborate at the institutional level. The UK has already taken steps to facilitate the use of digital trade documents and electronic signatures under its Electronic Trade Documents Act 2023 (ETDA), and individual G7 countries like France and Germany are exploring similar frameworks. 

Huertas said, “If adopted by the EU on a pan-European basis, MLETR will provide efficiency and legal certainty. And that’s exceptionally important to put that overlay on national-bound bills of exchange laws and achieving a change of mindset.”  

Currently, many EU-based companies looking to use BexNote have to rely on the UK’s regulatory framework for digital bills of exchange. An EU Regulation would allow uniform MLETR adoption and future-proof legal certainty, benefitting trade across the EU’s Single Market. 

As more jurisdictions embrace digital trade laws, the BexNote and other digital solutions should gain wider acceptance as they are built on common operational and legal standards. 

Practical benefits for businesses

Using digital tools like the BexNote will benefit importing and exporting businesses, particularly in terms of liquidity management and regulatory compliance. 

One of the biggest advantages is that it treats trade liabilities as operational capital rather than financial capital for non-financial sector corporates. This distinction allows companies to maintain healthy balance sheets without increasing their financial liabilities, which can help them better manage their cash flow and improve their financial standing with rating agencies.

Its flexibility also enhances liquidity management. Companies can choose to hold onto the BexNote until maturity or sell it to a third party to generate immediate cash, allowing them to respond to changing financial conditions.

Rupprecht said, “If [a business’] liquidity position is good, they can keep the BexNote and present it to their buyer on the maturity date. But if they need liquidity, they can sell it. At each particular moment, the possessor always has the choice, because its fungibility makes it easily traded.”

Additionally, the BexNote simplifies the process of engaging smaller suppliers in supply chain finance programmes. In traditional programmes, banks often hesitate to work with small and medium-sized enterprises (SMEs) due to the high cost of conducting Know Your Customer (KYC) procedures. 

The BexNote reduces this complexity by streamlining the transfer of financial obligations, making it easier for banks to include SMEs in their programmes. As a result, more suppliers can access financing, which improves the overall health and resilience of the supply chain without compromising KYC compliance.

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The digitisation of bills of exchange through solutions like the BexNote addresses long-standing inefficiencies, and can thereby allow businesses to better manage liquidity and optimise their financial strategies. 

While regulatory hurdles remain, adopting digital trade laws across jurisdictions will likely pave the way for wider acceptance of digital instruments like the BexNote. 

The post BexNote: The nascent digital revolution in bills of exchange appeared first on Trade Finance Global.

In Georgia, the high costs associated with providing banking services, and stringent creditworthiness or collateral requirements, pose significant challenges for many small and medium enterprises (SMEs) seeking financing through lending offers. 

This finance gap is particularly concerning because SMEs play a crucial role in driving trade, economic development, and employment in Georgia. Given these challenges, factoring can provide substantial benefits for businesses by enabling quick structuring, meeting SMEs’ objectives such as releasing cash trapped within their balance sheets and accessing alternative funding sources at competitive rates, thereby promoting inclusiveness.

The National Bank of Georgia, as a key stakeholder, is actively supporting the country’s long-term economic growth by promoting the development of factoring. This effort aims to establish a solid foundation for the broader private financial sector to provide SMEs with finance solutions through receivables finance.

Collaboration is key

Since 2020, the National Bank of Georgia has been closely collaborating with the European Bank for Reconstruction and Development (EBRD) and Investors’ Council Secretariat (ICS), alongside the Ministry of Economy and Sustainable Development, Ministry of Justice, and Ministry of Finance. 

This collaborative approach includes active participation in a Factoring Working Group facilitated by ICS, bringing together stakeholders from the factoring industry, commercial banks, micro-finance organisations, legal experts, and the public registry. 

Additionally, since 2023, the International Finance Corporation (IFC), in collaboration with the National Bank of Georgia, has worked to develop guidelines that provide capacity and knowledge to banks and DFIs, and promote growth in non-traditional lending solutions for SMEs. 

Furthermore, the World Bank and the Ministry of Economy and Sustainable Development of Georgia are developing a legal framework for secured transactions, addressing factoring issues. Under this framework, all transactions registered in the factoring registry will receive priority over other security claims. 

This reform supports the advancement of the factoring market, meeting urgent demands from the business sector and the factoring initiative is more advanced compared to developments in secured transactions. These ongoing collaborations aim to advance factoring legislation and digitalisation in Georgia.

The growth and decline of factoring in Georgia

The latest data from the Service for Accounting, Reporting, and Auditing Supervision (SARAS) indicates that in 2022, the total trade receivables of corporations in the first, second, and third categories reached approximately 8.8 billion Georgian lari (GEL). This represents a 23% increase compared to the previous year, and aligns with an annual average growth rate of 20% observed over recent years.

Many factors, including cross-company receivables, influence the amount of fundable receivables, yet the data remains promising. Despite the stable growth and high volume of trade receivables, the volume of factoring transactions remains relatively small and subject to significant fluctuations. 

In Georgia, although micro-finance organisations, micro-banks, and commercial banks are authorised to offer factoring services, only some commercial banks currently engage in this practice. These banks primarily focus on domestic factoring, but recent trends indicate a small yet growing interest in international factoring. 

In 2019, the top three banks, which are primarily factoring providers, totalled 165 factoring transactions, with international factoring accounting for two transactions and 990,000 GEL out of a total volume of 358 million GEL. 

By 2022, the number of transactions had surged to 44,000, with international factoring accounting for 17 transactions and 3.9 million GEL out of a total volume of 670 million GEL. 

However, in 2023, there was a 50% decrease in the number of transactions and a 21% decrease in volume compared to 2022.

The main reasons and shortcomings responsible for the lower uptake of factoring in Georgia may be summarised in the following types of market gaps:

• Lack of necessary legal and regulatory framework;
• Lack of technological infrastructure;
• Lack of knowledge and capacity.

Limiting factors

Factoring in Georgia is currently constrained by substantial financial and legal hurdles. 

Key issues include: 

• The debtor’s right to limit the transfer of receivables to the factor;
• Lack of robust legislation to clearly define rights and obligations in factoring transactions;
• Inadequate regulation of factoring activities;
• The absence of established criteria for registering factoring companies. 

These challenges significantly limit the potential for factoring in the region and restrict SMEs’ access to the tool.

The new law aims to address these challenges comprehensively by establishing a clear legal framework. 

It will prohibit debtors from restricting the creditor’s ability to transfer receivables to the factor or imposing additional conditions on such transfers, define eligibility criteria for receivables suitable for factoring, clarify procedures for registering ownership rights, and mandate the creation of a centralised factoring register. 

This register, linked to the Georgian Revenue Service’s electronic invoice database and under the ownership of the National Agency of Public Registry, will prevent “double factoring” and ensure the validity of ownership claims. Additionally, the law promotes the development of an electronic platform tailored for factoring transactions, providing a virtual space where parties can initiate, manage, and complete transactions securely and efficiently. 

By enhancing transaction transparency, facilitating real-time monitoring, and enabling seamless communication between stakeholders, this centralised platform aims to foster fair competition among factors and potentially reduce financing costs. 

The role of the electronic platform would be twofold. First, it would facilitate a multi-funder approach, allowing smaller or new players to access the factoring market by alleviating the significant costs associated with required technical infrastructure. Second, it aims to introduce competition through a marketplace approach on the electronic platform. 

Moreover, as factoring may be perceived as a risky undertaking, risk-sharing and insuring practices are not easily accessible. However, the registry and platform will support factoring companies in mitigating risks by enabling them to use data to better evaluate customers, thereby promoting stability in the sector. 

The work on the design of the electronic platform is currently underway in close cooperation with the IFC. Simultaneously, efforts to find a prospective financier for the platform are ongoing. The ownership of the electronic platform is likely to take the form of a Public-Private Partnership, where the state will collaborate with international organizations to deploy and operate factoring transactions, and potentially expand to include other trade finance products following secured transaction reform. 

Importantly, the draft law does not mandate the existence of a centralised or state-owned platform. The Draft Law on Factoring, incorporating all the aforementioned legal and technical provisions, is expected to be enforced in early 2025.

In addition to current regulatory efforts and planned technological improvements in factoring, a credit information bureau plays a crucial role in Georgia’s financial ecosystem. Registered with the National Bank of Georgia, Creditinfo Georgia JSC is the country’s sole credit bureau. Its functions include collecting, storing, processing, and issuing credit information about both individual persons and corporate entities, which includes details of loans and other obligations to form the user’s credit history. 

The bureau ensures customer consent before sharing any related information with third parties. Additionally, it provides financial sector representatives and other users with insights into how customers manage their financial obligations. 

Based on this credit history, the bureau determines and reports the customer’s credit score and rating, offering interested parties an assessment of the associated lending risk and the likelihood of repayment.

The post State of factoring in Georgia: An update on collaboration and regulation appeared first on Trade Finance Global.

At the EBRD’s Conference on the Digitalisation of International Trade in Morocco 2024, Othmane Saadani, Lawyer and Partner at Saadani & Associates, presented the legal framework for digitalisation of trade in Morocco. 

Digitalisation is a popular phrase within the trade finance industry, and the move to a digital infrastructure is gaining momentum. However, multiple steps are required before we reach the end goal.

Outlining the current digitalisation efforts in Morocco, Saadani detailed the fundamental legal principles necessary to understand the current Moroccan legal framework, as well as focussing on Morocco’s incorporation of the UNCITRAL Model Law on Electronic Transferable Records (MLETR).

Moroccan legal context and the importance of transferable documents

According to Saadani, the Moroccan Ministry of Trade and Industry and the Moroccan government is ready to conduct the necessary reforms to fully embrace the digitalisation of trade.

The crux of Morocco’s digital transition in trade lies in the adaptation and evolution of its legal systems to support and regulate electronic transactions.

However, Saadani said, “Only a legislative reform can lead to an in-depth change required by the digitalisation of international trade”. 

Morocco has not yet incorporated the MLETR framework to govern electronic transferable documents. However, France has recently implemented the UNCITRAL Model Law, which could serve as a case study for Morocco, as both are civil law jurisdictions. 

To contextualise the Moroccan transition, it is important to step back and reflect on transferable documents more generally. This notion is important because it forms the legal basis of any reform or legislative package in digital trade. 

Saadani said, “Transferable documents are key elements of international trade because they represent rights on goods that can be transferred just by a simple document delivery.”

However, the notion of a transferable document is not defined in Moroccan law, but it remains a fundamental notion in trade facilitation. This notion is used on a daily basis in international trade with letters of exchange and promissory notes, which require a transfer. In Morocco, this is still done physically using paper documents. 

This is not due to a lack of will to innovate and employ digital solutions but because the currently applicable law in Morocco does not make this electronic transfer of property possible. 

Though some have raised concerns regarding the reliability and security of transactions when using digital documents, Saadani said, “In reality, we know that they are good mechanisms for increased reliability and security. In that regard, digital mechanisms are far more secure than paper-based documents.”

Law 53/05 and Law 43/20: Legal frameworks in Morocco 

Morocco will not, however, be starting from scratch in its quest for trade digitalisation. There is a rich existing legal framework which is already well utilised. 

This comprises essentially two laws – Law 53/05 and Law 43/20. 

Law 53/05, enacted in 2007, has had several successes but also faced difficulties in implementation. It was complemented by Law 43/20 and several implementation decrees. 

Saadani said, “With these two laws, we have a body of Moroccan laws which provides a solid legal basis for the digitalisation of legal instruments such as e-signatures and contracts.” 

To provide more granular information, Law 53/05 supervises the exchange of legal electronic data and guarantees that electronic documents have the same legal value as paper-based documents. 

Law 53/05 is the first law regarding electronic data exchange in Morocco. It implements the UNICTRAL Model Law in a manner adapted to the specificities of the Moroccan context. However, it does not make the digitalisation of international trade transactions possible. 

Law 43/20 has made it possible to reform Law 53/05, establishing a framework for trust services. 

It makes it possible to undertake electronic exchange and trade more reliably. According to Saadani, it helps to mitigate risks from fraud, forgery and phishing that are prevalent in Morocco.

Saadani said, “These laws will created an enabling environment that  will protects the data, therefore increasing trust in the process.”

These elements are important to implementing further digital reform as they facilitate procedures and allow for more fluid use of certain legal documents. However, these laws do not allow for the recognition of document transferability digitally, which is the main condition justifying the need for reform.

Law 43/20 is relevant in this context as it strengthens the reliability of these elements of the electronic signature and creates three standards that provide guidance, making it possible to identify to which extent electronic signatures are reliable. 

There are three standards that are used to identify reliability. First is the “simple standard”, which makes it possible to identify the signatory only. The “advanced format” makes it possible to incorporate more complex identification features, either using an electronic certificate or a biometric signature. 

Thirdly, there is also the “qualified signature,” which relies on a qualified electronic certificate issued by a trusted service provider authorised to propose services by a Moroccan entity created under this law. 

These service providers must be legally guaranteed to meet the standards to produce these guarantees. 

e-signatures: The next steps to widespread recognition

What are the important next steps to the recognition of digital documents?

According to Saadani, it is electronic signatures and their ability to meet stringent criteria to ensure their legality and reliability.

One crucial component in accepting electronic signatures is the assurance of the signatory’s identity and the document’s integrity. Saadani said, “A key element for electronic signatures is a clear identity of the signatory so there can be legal recognition of the signature and the intent of the contract.” 

Further elaborating on the validation criteria, Saadani said, “The authenticity of the document’s author has to be checked, and, in order to be recognised from the legal standpoint, this electronic signature has to be compliant with the legal requirements of the law that was somehow modified by Law 43/20.” 

This modification is significant, as it aims to bolster the reliability of electronic signatures by establishing standards that will dictate the extent to which an electronic signature can be trusted.

This structured approach to electronic signature validation marks a critical step towards standardising digital transactions both locally and internationally. 

UNCITRAL Model Law: Opportunities and challenges 

Having contextualised the Moroccan legal framework, it is important to understand this within the context of the UNCITRAL Model Law. The Model Law is particularly important for standardising international digital exchange trade more generally. Since it is a model law, its provisions will not be totally identical when implemented into national laws. However, the inspiration from its broad principles is more important. 

The goal of the Model Law is to focus on the standardisation of laws between countries.

Saadani said, “This will help avoid the issue of multiple standards across countries and will help facilitate more international trade.” Although Morocco has not yet adopted the Model Law, there is significant interest in modifying current laws. 

The most problematic notion in Morocco is that of “transferable documents” as defined by the Model Law, as this is not currently defined in Moroccan national law. 

Saadani said, “The main difficulty is to have control over these documents in some electronic manner. We need to have a clear, legal and adapted, efficient legal definition that will make it possible to enshrine this notion of electronic control.”

According to Saadani, the reforms required to move the industry ahead are substantial and will require industry-wide efforts, but they are necessary to maintain the integrity of digital transactions and safeguard against fraud.

Changing legislation is hard, and changing the way an entire industry works could be even harder. But as Saadani said, “This reform is possible. This reform is necessary.”

Perspectives juridiques sur la digitalisation du commerce au Maroc

Lors de la conférence de la BERD sur la digitalisation du commerce international tenue au Maroc en 2024, Othmane Saadani, avocat associé chez Saadani & Associates, a présenté le cadre juridique de la digitalisation du commerce international au Maroc.

La digitalisation est un terme populaire dans l’industrie du financement du commerce, et la transition vers une infrastructure numérique gagne en élan. Cependant, plusieurs étapes sont nécessaires avant d’atteindre l’objectif final.

Décrivant les efforts actuels de digitalisation au Maroc, Me. Saadani a détaillé les principes juridiques fondamentaux nécessaires pour comprendre le cadre juridique marocain actuel, en étudiant également la potentielle adoption par le Maroc de la loi type de la CNUDCI sur les documents transférables électroniques (MLETR).

Contexte juridique marocain et importance des documents transférables

Selon Me. Saadani, le ministère marocain du Commerce et de l’Industrie ainsi que le gouvernement marocain sont prêts à mener les réformes nécessaires pour adopter pleinement la digitalisation du commerce international. 

Le cœur de la transition numérique du commerce au Maroc réside dans l’adaptation et l’évolution de ses systèmes juridiques pour soutenir et réguler les transactions électroniques. 

Cependant, Me. Saadani a déclaré, « Seule une réforme législative peut conduire au changement en profondeur nécessaire à la digitalisation du commerce international ».

Le Maroc n’a pas encore incorporé le cadre MLETR pour régir les documents transférables électroniques. Cependant, la France a récemment adopté la loi type de la CNUDCI, ce qui pourrait servir d’étude de cas pour le Maroc, les deux étant des juridictions de droit civil. 

Pour mieux comprendre la réforme nécessaire au Maroc, il est essentiel d’adopter une perspective plus large et d’examiner les documents transférables de manière plus générale. Cette approche est cruciale car elle constitue la base juridique de toute réforme ou législation concernant le commerce numérique.

Me. Saadani a déclaré, « Les documents transférables sont des éléments clés du commerce international car ils représentent des droits sur des biens qui peuvent être transférés simplement par la livraison d’un document ».

Cependant, la notion de document transférable n’est pas définie dans la loi marocaine, mais elle reste une notion fondamentale dans la facilitation du commerce. Cette notion est utilisée quotidiennement dans le commerce international avec par exemple les lettres de change et les billets à ordre, qui nécessitent un transfert. 

Au Maroc, cela se fait encore physiquement avec des documents papier, car le droit positif marocain ne permet pas le transfert électronique de propriété. Pourtant, la volonté d’innover et d’utiliser des solutions numériques est bien présente chez la plupart des acteurs du commerce international au Maroc.

Bien que certains aient exprimé des inquiétudes concernant la fiabilité et la sécurité des transactions utilisant des documents numériques, Me. Saadani a déclaré, « En réalité, nous savons qu’ils sont de bons mécanismes pour une fiabilité et une sécurité accrue. À cet égard, les mécanismes numériques sont bien plus sécurisés que les documents papier ».

Loi 53/05 et loi 43/20 : Cadres juridiques au Maroc

Cependant, le Maroc ne part pas de zéro dans sa quête de digitalisation du commerce international. Un cadre juridique solide est déjà en place et largement utilisé.

Il se compose essentiellement de deux lois – la loi 53/05 et la loi 43/20.

La loi 53/05, promulguée en 2007, a connu plusieurs succès mais aussi des difficultés d’application. Elle a été complétée par la loi 43/20 et plusieurs décrets d’application. 

Me. Saadani a déclaré, « Avec ces deux lois, nous disposons d’un corpus de lois marocaines qui fournit une base juridique solide pour la digitalisation des instruments juridiques tels que les signatures électroniques et les contrats ».

La loi 53/05 supervise l’échange de données électroniques juridiques et garantit que les documents électroniques ont la même valeur juridique que les documents papier. 

La loi 53/05 est la première loi concernant l’échange de données électroniques au Maroc. Elle met en œuvre la loi type de la CNUDCI d’une manière adaptée aux spécificités du contexte marocain. Cependant, elle ne permet pas la digitalisation des transactions commerciales internationales. 

La loi 43/20 a permis de réformer la loi 53/05, établissant un cadre pour les services de confiance. Elle permet de réaliser des échanges et des transactions électroniques de manière plus fiable. Selon Me. Saadani, elle aide à atténuer les risques de fraude, de contrefaçon et de phishing qui sont répandus au Maroc.

Me. Saadani a déclaré, « Ces lois ont créé un environnement propice qui protège les données, augmentant ainsi la confiance dans le processus ». 

Ces éléments sont importants pour la mise en œuvre de nouvelles réformes numériques car ils facilitent les procédures et permettent une utilisation plus fluide de certains documents juridiques. 

Cependant, ces lois ne permettent pas la reconnaissance de la transférabilité des documents de manière numérique, ce qui est la principale raison justifiant le besoin d’une réforme.

La loi 43/20 est pertinente dans ce contexte car elle renforce la fiabilité de ces éléments de la signature électronique et crée trois normes qui fournissent des directives, permettant d’identifier dans quelle mesure les signatures électroniques sont fiables. 

Il existe trois normes utilisées pour identifier la fiabilité. La première est la « norme simple », qui permet d’identifier uniquement le signataire. 

Le « format avancé » permet d’incorporer des caractéristiques d’identification plus complexes, soit en utilisant un certificat électronique soit une signature biométrique. 

Troisièmement, il y a aussi la « signature qualifiée », qui repose sur un certificat électronique qualifié délivré par un prestataire de services de confiance autorisé à proposer des services par une entité marocaine créée en vertu de cette loi. Ces prestataires de services sont légalement tenus de respecter les normes afin de fournir les garanties exigées.

Signatures électroniques : les prochaines étapes pour une reconnaissance généralisée

Quelles sont les étapes importantes pour la reconnaissance des documents numériques ? 

Selon Me. Saadani, ce sont les signatures électroniques et leur capacité à répondre à des critères stricts pour garantir leur légalité et leur fiabilité. Un élément crucial pour accepter les signatures électroniques est l’assurance de l’identité du signataire et de l’intégrité du document. 

Me. Saadani a déclaré, « Un élément clé pour les signatures électroniques est une identité claire du signataire afin qu’il puisse y avoir une reconnaissance juridique de la signature et du consentement du signataire ».

En précisant les critères de validation, Me. Saadani a déclaré, « L’authenticité de l’auteur du document doit être vérifiée, et, pour être reconnue d’un point de vue juridique, cette signature électronique doit être conforme aux exigences légales de la loi qui a été modifiée par la loi 43/20 ». 

Cette modification est importante car elle vise à renforcer la fiabilité des signatures électroniques en établissant des normes qui prévoient dans quelle mesure une signature électronique peut être digne de confiance. 

Cette approche structurée de la validation des signatures électroniques marque une étape cruciale vers la standardisation des transactions numériques tant au niveau local qu’international.

Loi type de la CNUDCI (MLETR): Opportunités et défis

Après avoir analysé le cadre juridique marocain actuel, il est essentiel de le comparer à la loi type de la CNUDCI. Cette loi est cruciale pour uniformiser la numérisation du commerce international. Étant une loi type, ses dispositions peuvent varier lorsqu’elles sont adoptées dans les lois nationales, mais l’essentiel est de suivre ses grands principes.

L’objectif de la loi type est de se concentrer sur la standardisation des lois entre les pays. 

Me. Saadani a déclaré, « Cela permettra d’éviter les différences de normes entre les pays et rendra le commerce international plus fluide ».  

Bien que le Maroc n’ait pas encore adopté la loi type MLETR, il y a un intérêt important pour une réforme. La notion la plus problématique au Maroc est celle des « documents transférables » tels que définis par la loi type, car elle n’est pas actuellement définie dans la loi nationale marocaine. 

Me. Saadani a déclaré, « La principale difficulté est d’avoir le contrôle de ces documents de manière électronique. Nous devons avoir une définition légale claire, adaptée et efficace qui permettra de consacrer juridiquement la notion de contrôle électronique ».

Selon Me. Saadani, des réformes importantes sont nécessaires pour faire progresser le commerce international au Maroc. Elles exigeront des efforts de tout le secteur, mais sont indispensables pour garantir l’intégrité des transactions numériques et prévenir la fraude.

Réformer une loi est difficile, et transformer le fonctionnement d’un secteur entier pourrait l’être encore plus. Mais comme l’a dit Me. Saadani, « Cette réforme est possible et est nécessaire ».

The post Legal perspectives on the digitalisation of trade in Morocco appeared first on Trade Finance Global.

Capital Requirements Directive VI (CRD VI), introduced by the European Commission, aims to enhance the regulatory framework for cross-border banking services within the EU. 

Effective from January 2027, the changes implemented for EU Member States have the potential to significantly impact syndicated lending and the trade finance sector.

To learn more about the implications of CRD VI, Deepesh Patel (DP), Editorial Director, TFG spoke with Adam Harwood (AH), Associate, A&O Shearman and Bob Penn (BP), Partner, A&O Shearman, in a 2-part series.

DP: Could you provide an overview of CRD VI, highlighting its primary objectives and significant changes from previous directives?

BP: CRD VI is part of the European Commission’s broader ‘2021 Banking Package’, the expressed aims of which were to implement the final Basel III  standards, contribute to the green transition and provide for stronger supervision. CRD VI was published in the Official Journal on 19 June 2024. 

Under the banner of stronger supervision, CRD VI will reshape how non-EU (including European Economic Area) banks service EU clients on a cross-border basis. CRD VI introduces a requirement for EU Member States to prohibit the provision of cross-border banking services (including lending) into the EU by a third country “institution” (in broad terms, a bank or a large broker-dealer) other than from a locally licensed branch. The prohibition appears as a new Article 21c of CRD, which will apply from 11 January 2027.

Existing EU law is silent on the regulation of cross-border banking services. Whether (and with what restrictions) third-country institutions can provide services to clients in the EU is, therefore, dependent on the national law of the local client’s Member State. 

For example, third-country institutions can currently lend to clients in certain Member States (e.g. the Netherlands) with no restrictions as compared with local institutions, and without the need to be licensed. Conversely, it is not possible to lend into certain Member States (e.g. France) from a third country institution.

CRD VI will harmonise this position by requiring all Member States to impose a licensing requirement on certain cross-border services, subject to certain exemptions (including reverse solicitation).

DP: What are the new licensing requirements under CRD VI, and how will these impact cross-border operations within the EU?

AH: From 11 January 2027, a branch license will be required where:

1. a third-country institution
2. provides core banking services
3. in a Member State
4. unless an exemption is available.

Breaking each of these limbs down:

DP: To whom does this apply? What is a ‘third country institution’?

BP: The requirement will apply to “an undertaking established in a third country” that: 

1. would qualify as a credit institution; or 
2. “would fulfil the criteria laid down in points (i) to (iii) of Article 4(1), point (b) of the Capital Requirements Regulation (CRR), if it were established in the Union”.
   
   In practice the former would capture banks; the latter, investment firms (broker-dealers) which (i) deal on own account or underwrite financial instruments, and (ii) are large or part of a large group (having total consolidated assets or carrying out investment services in respect of amounts exceeding EUR 30 billion). The definition explicitly excludes insurance undertakings, commodity dealers and funds.

DP: What services are captured? What are ’core banking services’?

AH: The requirement will apply to ‘core banking services’. This is defined to include: 

1. accepting deposits and other repayable funds;
2. lending, including inter alia: consumer credit, credit agreements relating to immovable property, factoring with or without recourse, financing of commercial transactions (including forfeiting); and
3. provision of guarantees and commitments.

“In” a Member State

The legislation does not define what amounts to the provision of a service “in” a Member State. The background materials make it clear that the European Commission anticipate that all activities with EU clients should be caught, other than consumption abroad (e.g. where an EU citizen is physically outside the EU at the point of receipt of services). 

We will have to wait and see how Member States interpret this and how those interpretations impact the scope of the restriction in each Member State: some Member States may seek to adopt a narrower interpretation of what amounts to activity “in” their jurisdiction than others.

DP: How do you anticipate CRD VI will affect syndicated lending within the trade finance sector?

BP: Primary Lending

Once the cross-border services restriction goes live, primary lending business in the EU will be restricted for in-scope undertakings i.e. banks and large investment firms. This would apply from the point at which an in-scope undertaking ‘lends’ or commits to lend into an EU Member State, whether as a solo lender of record or as part of a syndicate.

‘Lending’ under CRD VI will include consumer credit, credit agreements relating to immovable property, factoring, with or without recourse, and financing of commercial transactions (including forfeiting). Cross-border trade financing activities by in-scope institutions with EU borrowers will likely fall within scope of the CRD VI restriction unless an exemption is available.

This will have a potentially significant impact on the way UK and global banks (and other in-scope firms) are able to carry out trade financing business with EU customers. Firms will need to understand the restrictions, and how they impact their business lines and consider the potential options to enable them to continue or commence business in the EU. 

These options include reliance on exemptions, and potential structural change, such as establishing a branch in relevant local EU jurisdiction(s) or migrating business to an EU subsidiary (see below for further detail).  

Secondary Lending

CRD VI will likely also affect secondary loan markets: we expect the purchase of RCFs or term loans with un-utilised drawdowns available will most likely fall foul of the Article 21c commitment/lending restrictions (even if these in fact remain undrawn), although this position may vary from Member State to Member State.

While there is no relevant guidance to date, it is likely that the purchase of term loans by in-scope undertakings where there is no possibility of further extension of credit would fall outside the scope of Article 21c, although again this position may vary from Member State to Member State.

CRD VI is also likely to impact participation and sub-participation where this involves an in-scope non-EU bank and an EU party. 

It is possible that both LMA participation and LSTA participation will be characterised as a species of guarantee (where unfunded) or loan (where funded) as between grantor and (sub-)participant. This risks triggering Article 21c for non-EU banks where they participate in loans originated by EU lenders.

Given the true sale treatment under the LSTA participation agreement, where the borrower is in the EU we consider that a participation from a grantor to an in-scope undertaking as participant in this format also risks triggering Article 21c restrictions for the participant, since this would purport to confer lending obligations into an EU Member State for that participant.

Stay tuned for Part 2 of this Q&A, where the exemptions under CRD VI will be discussed in further detail.

The post Part 1: CRD VI and its implications for syndicated lending and trade finance appeared first on Trade Finance Global.

COSMIC is a centralised digital platform to facilitate customer information sharing among financial institutions (FIs) with the intent of combatting global money laundering (ML), terrorism financing (TF), and proliferation financing (PF). 

The platform facilitates proactive information sharing among FIs by allowing one that detects suspicious activities – such as meeting or exceeding defined thresholds of red flag indicators – to request or share information with other FIs linked to the customer or transaction. 

Financial institutions participating on COSMIC may only share customer information with another participating FI if that customer’s profile has displayed indicators of suspicious activity.

Legislation that set out the legal basis and safeguards for such sharing – the Financial Services and Markets (Amendment) Act (FSMA) 2023 – commenced on the same day the platform launched.

Under the FSMA, participating financial institutions must also have policies and operational safeguards in place to protect the confidentiality of information shared. 

The combination of this platform and legislation will help to balance the need to share information on potential criminal behaviour with the importance of safeguarding the interests of legitimate customers.

Before sharing information within COSMIC, FIs are encouraged to asses if the customer behaviour warrants concern, allow the customer to explain any seemingly anomalous behaviour, and consider information sources beyond the platform itself to gain a holistic understanding.

Customers are encouraged to continue providing timely responses if FIs request to clarify their risk profiles or transactions so that FIs can make informed risk assessments.

Loo Siew Yee, assistant managing director (policy, payments, and financial crime) at MAS, said: “COSMIC will enable FIs to warn each other of suspicious activities and make more informed risk assessments on a timely basis. 

“It complements the industry’s existing close collaboration with MAS and law enforcement authorities to combat financial crime. This will strengthen Singapore’s capabilities to uphold our reputation as a well-regulated and trusted financial centre.”

COSMIC was co-developed by MAS and six major commercial banks in Singapore, which will be the participant FIs on COSMIC during its initial phase: DBS, OCBC, UOB, Citibank, HSBC, and Standard Chartered Bank.  

Information sharing is currently voluntary and focused on three key financial crime risks in commercial banking: misuse of legal persons, misuse of trade finance for illicit purposes, and proliferation financing.

The post MAS’s new digital tool COSMIC aims to curtail financial crimes appeared first on Trade Finance Global.

The synthetic securitisation transaction has a 3.5-year scheduled maturity, and the weighted average life of the initial pool is around 90 days. As these short-term assets mature and the pool amortises, new trade finance assets will be selected to replenish the portfolio on a monthly basis based on pre-set conditions.

“We have been at the forefront of opening trade finance assets to capital markets and remain one of a small number of issuers in the synthetic securitisation space,” said Oliver Resovac, Global Co-Head of Trade Finance & Lending at Deutsche Bank. “The continuation of this landmark securitisation programme – now in its fifth iteration – allows our trade finance business to originate a greater volume of transactions in the space, which, in turn, is helping us to power the real economy and develop local communities.”

In addition, TRAFIN 2023-1 represents one of only a few synthetic securitisations issued by Deutsche Bank that has been verified as compliant under the European Union’s “Simple, Transparent & Standardised” standard – enabling higher overall capital relief and tighter pricing.

The transaction comes as trade finance as an asset class continues to gain traction among institutional investors. By investing in securitised tranches referencing traditional short-term trade finance products – including letters of credit and accounts receivables – investors can gain exposure to a global portfolio diversified across products, industries and client types.

The asset class is also generally characterised by low default rates, self-liquidation, and short tenors –making it a stable, attractive and relatively scarce asset class for capital market investors.

“On the back of strong investor demand, we are also expanding into other forms of capital market investment products for trade finance, including funded risk-sharing arrangements, traditional working capital, and documentary trade facilities, among others,” added Deutsche Bank’s Resovac. “Going forward, we believe these products will play an an increasingly important role in providing additional sources of capital.”

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Businesses and public authorities across the EU may be facing tougher laws on late payments, with the European Commission proposing a new regulation enforcing maximum 30-day terms.

The proposal, part of a comprehensive set of policies designed to underpin the resilience of SMEs across the EU, is set to revise and replace the 2011 Late Payment Directive with a more stringent EU Regulation. The implications of this proposal have spurred discussions and raised several concerns within the supply chain community.

At the ITFA Christmas event in London, TFG’s Deepesh Patel sat down with Silja Calac, a Board Member at the International Trade and Forfaiting Association (ITFA), to discuss the key novelties of the Late Payment Regulation proposal compared to the existing Late Payment Directive, its potential impact on businesses, especially SMEs, and the recommendations put forth by ITFA to navigate these proposed changes successfully.

The 2011 Late Payment Directive: The need for change

On 12 September, 2023, the European Commission unveiled a proposal for a new EU Regulation aimed at tackling the issue of late payments in commercial transactions in Europe. A fundamental feature of the European Commission’s proposal is to replace the current 2011 Late Payment Directive with a Regulation applicable to all EU Member States once enforced.

Currently, the existing directive stipulates a payment term of 30 days for B2B transactions. However, this can be extended to 60 days or more “if not grossly unfair to the creditor”.

In practice, the absence of a maximum payment term and the ambiguity in the definition of “grossly unfair” has led to a situation in which payment terms of 120 days or more are not uncommon.

The new proposal takes a decisive standpoint, striving to establish a uniform 30-day payment term applicable for all commercial transactions, including B2B, large companies and SMEs while protecting businesses from the adverse effects of payment delays in commercial transactions. It is not yet clear how far this will apply to public authorities though.

The proposed regulation sets forth a comprehensive set of objectives, aiming to combat late payments, rectify imbalances in contractual bargaining power, facilitate timely payments, and fortify redress systems. With a pronounced emphasis on protecting SMEs, the regulation seeks to establish a clear, standardised payment term applicable to all European businesses.

As Calac said, “The current Directive in place leaves much room for interpretation. The European Commission wants to establish a very clear and strict payment rule for all businesses.”

Pending approval by the European Parliament and the EU Council of Ministers, the proposed legislation entails automatic penalties for late payments, accruing interest at 8% above the European Central Bank (ECB) base rates. Notably, these laws encompass every commercial or business organisation and are specifically designed to expedite payments for the EU’s SMEs.

Other provisions include the removal of the right for contracting parties to extend payment terms, a restriction on the creditor’s ability to waive late payment interest, and an obligation on debtors to pay late payment interest on overdue invoices. This comprehensive overhaul reflects the European Commission’s commitment to creating a more efficient and equitable payment landscape, particularly benefiting SMEs.

Diving into everyday business challenges: ITFA’s perspective

While the proposal presents at first glance some commendable measures, such as reducing maximum payment terms for SMEs and reinforcing the enforcement by compulsory interest payments, closer examination reveals that the wider impact of the proposed Regulation requires careful consideration.

Despite the regulation’s intention to support SMEs, ITFA advocates against a rigid, one-size-fits-all model. For instance, Calac referenced a potential challenge for buying SMEs, which often operate on tight margins, in complying with the mandated payment term.

Strict timelines, while aimed at promoting financial discipline, may inadvertently burden SMEs as buyers/debtors, constraining their ability to manage cash flow effectively and allocate resources efficiently.

She said, “This will backfire when SMEs act as the buyer. For them, they will need to seek additional funding resulting in higher financing costs, particularly since it will not be based on the rating of their better-rated buyer.”

Moreover, limiting businesses’ ability to freely negotiate extended payment terms tailored to their unique circumstances is highly likely to disproportionately affect industries with complex supply chains and lengthy capital cycles, particularly impacting SMEs.

Such a stringent approach overlooks the diverse nature of industries, distinct business models, and variable financial capabilities of SMEs. Consequently, it unintentionally infringes upon the right to freedom of contract, restraining negotiations that might better serve the parties involved.

As Calac emphasised, “This is not ideal in a free economy. The German Association of Lawyers (Deutscher Richterbund has already expressed its concern as this regulation would be against liberal economic principles and the freedom of contracting. It is also what ITFA fears can be the detriment of SMEs.”

Besides, the proposed 30-day limit of payment terms could be detrimental to the competitiveness of EU suppliers and buyers engaged in transactions outside the EU.

International settings commonly involve longer payment terms, and constraining these terms could result in a competitive disadvantage for EU-based companies. Although the freedom of contract would be maintained in B2B transactions outside the EU, EU-based companies operating internationally might be compelled to require shorter payment terms, diminishing their attractiveness compared to their non-EU counterparts.

The Commission’s proposal for the Late Payment Regulation recognises an opportunity to enhance competitiveness through improved payment discipline which can undoubtedly provide valuable support to SMEs.

However, the present proposal brings along unintended consequences that could jeopardise the very businesses it seeks to protect. Therefore, a nuanced approach is essential, one that achieves a delicate balance, safeguarding SMEs while acknowledging and addressing the specific complexities of different situations rather than applying a one-size-fits-all solution.

The post Video | ITFA Christmas Party: Unwrapping the EU Late Payments Regulation appeared first on Trade Finance Global.

The FCI 55th Annual Meeting in Marrakech marked a historical moment in receivables finance, unveiling three transformative initiatives set to redefine the industry’s landscape. This powerful trifecta, comprising UNIDROIT’s Factoring Model Law, the FCI Legal Study, and the IFC Knowledge Guide on Factoring Regulation and Supervision, reflects a collective endeavour meticulously designed to operate in harmony. 

IFC has consistently prioritised the support for SME finance. In addition to unlocking working capital finance for SMEs, factoring serves as a risk-mitigated mechanism relying on underlying trade for financiers, strengthens value chain relationships for companies, and enhances transparency and efficiency in financial systems.

In alignment with its dedication to SME finance, IFC has spearheaded the creation of the IFC Knowledge Guide, reflecting its commitment to enhancing working capital accessibility for SMEs and the development of the factoring market.

In Marrakech, Peter Mulroy, Secretary General of FCI, sat down with Qamar Saleem, CEO, SME Finance Forum, to talk about the importance of these initiatives, uncovering how the IFC Knowledge Guide, with its practical orientation, complements the foundational legal frameworks introduced by the Model Law and the benchmarking provided by the FCI Legal Study. 

Bridging regulatory gaps

Historically, the factoring industry lacked clear guidance on regulatory aspects. While FCI had previously submitted several papers offering insights into specific attributes for implementing a regulatory framework, a structured regulatory framework for the factoring industry was still missing. 

The IFC, in collaboration with the World Bank, recognised this void and created the ‘IFC Knowledge Guide on Factoring Regulation and Supervision.’ 

The IFC Knowledge Guide is an exhaustive resource providing a deep dive into the factoring industry from a regulatory perspective. 

The guide is crafted to cater to a diverse audience, including policymakers, decision-makers, officials at central banks, and supervisory authorities. Beyond local borders, its scope extends globally, reaching governmental departments and the personnel of international institutions like the World Bank. 

Saleem said, “Often, factoring and regulatory regimes are confined to the domestic level, leading to inconsistencies. This makes it challenging to discern the necessary elements for a robust factoring and supply chain network.”

While the guide is primarily aimed at central banks and regulators, it doesn’t solely focus on the regulatory aspect. Instead, it intertwines practical elements and addresses several global challenges facing the industry. 

Saleem further underscored such an essential feature of the Knowledge Guide, “We felt we need a knowledge guide which is practical, offering practical insights and concrete recommendations.” 

The guide, consisting of six main sections, goes beyond theoretical frameworks. It provides practical guidelines to policymakers, offering examples and best practices that can be leveraged for setting up effective regulatory regimes. 

The document, therefore, serves as a comprehensive tool, providing options and recommendations for establishing a coherent regulatory framework, allowing any central bank/regulator to gather the most important elements when developing regulations within the factoring industry.

Furthermore, complementing UNIDROIT’s model law, the IFC guide represents a reference point for law reforms and future harmonisation efforts. As Saleem pointed out, “The knowledge guide complements the model law, giving industry practical insights and examples on how to set up the right regimes.” 

Navigating the regulatory seas: A central banker’s compass

Steering regulatory frameworks, central bankers can use the IFC Knowledge as a crucial navigational tool since it is designed to empower them with insights into three pivotal elements: regulations, supervision tools, and regulatory financial aspects.

One of the central tenets of the Knowledge Guide is its comprehensive coverage of global factoring laws. With the increasing adoption of factoring laws worldwide, Saleem highlighted the importance of the guide for central bankers, stating, “The guide sheds light on these aspects, giving central bankers valuable insights into the evolving regulatory framework.” 

For central bankers, this translates into a vital resource for understanding the global factoring regulations thereby facilitating informed decision-making.

In addition to regulations, the guide also enables central bankers to gain practical insights into the necessary supervisory and control tools. Saleem said, “It goes deeper into local policies, considering not only regulatory perspectives but also central bank standpoints.” 

This in-depth exploration provides central bankers with the tools needed to ensure effective oversight and regulatory compliance.

Moreover, the Knowledge Guide recognises the significance of capital requirements and capital adequacy regulations within regulatory frameworks. 

Saleem noted, “The guide equips central banks not only with regulatory insights but also with a perspective on capital adequacy.” This holistic approach ensures that central bankers have a well-rounded foundation of all strategic areas to set standards or policies they expect financial institutions to meet. 

A collective force for global impact

The factoring industry has embarked on an unprecedented journey, unveiling three initiatives that promise to propel the factoring and receivables finance industry to new horizons. 

Introducing three sophisticated legal and technical initiatives — UNIDROIT’s Factoring Model Law, the FCI Legal Study, and the IFC Knowledge Guide on Factoring Regulation and Supervision — the industry stands on the verge of a transformative era.

The journey began with the launch of the Factoring Model Law in 2019, and was quickly followed by FCI’s Legal Study in 2020, which lasted nearly 3 years.

FCI Legal Study, a comparative study of legal and regulatory environments for factoring and receivables financing in Europe and some other major markets. 

The study spans 91 countries, making it the most extensive and comprehensive legal study in receivables finance to date, and incorporates the 2013 EUF legal study, a comprehensive review of the legal and regulatory framework in the 27 EU countries.

Saleem emphasised the FCI Legal Study’s role as the missing piece of the puzzle, not just providing information but serving as a benchmark for stakeholders in the factoring market. 

In conjunction with the release of the IFC Knowledge Guide, UNIDROIT has unveiled its recently adopted Factoring Model Law. This self-standing legal regime addresses legal and institutional gaps in the factoring industry, facilitating seamless factoring transactions.

The transformative trio operates on multiple levels — the legal foundation, extensive coverage and benchmarking, and practical implementation. 

Expressing excitement about the potential these initiatives hold, Saleem said, “I view it in three key aspects: the law sets the foundational framework, the knowledge guide offers practical insights, and the legal study serves as the industry benchmark.” 

Together, these three initiatives form a cohesive foundation for the growth and development of factoring and receivables finance, each playing a distinctive yet interconnected role in reshaping the factoring industry.

The post Video | Educating regulators: The IFC factoring guide appeared first on Trade Finance Global.

The overreaching arc of sanctions regulations is threatening the certainty of payments guaranteed by the smooth functioning of letters of credit (LC) in international trade.

This tension recently played out in the Singapore courts in a judgment handed down recently (Kuvera Resources Pte Ltd v JPMorgan Chase Bank, N.A. [2023] SGCA 28). 

The Singapore Court of Appeal overturned the first decision in Singapore concerning the enforcement of a sanctions clause. In November 2022, the High Court found that a sanctions clause had been validly incorporated into an LC confirmation, and it allowed the Singapore branch of JPMorgan Chase Bank, N.A. (the “Bank”) to decline payment to the beneficiary. 

The Court of Appeal upheld the findings on the incorporation of the sanctions clause, but considered that the clause did not justify the Bank’s failure to pay under the LC.

The Court found that the Bank’s risk-based decision, preferring to be sued by the beneficiary than be found by OFAC to have breached sanctions, was not contractually justified. 

Facts on Kuvera Resources v JPMorgan Chase Bank

The Bank had confirmed an LC issued in favour of Kuvera Resources Pte Ltd (“Kuvera”). All of the Bank’s advice and the confirmation contained a sanctions clause which (among other things) effectively precluded the Bank from paying if documents presented under the LC involved a vessel subject to US sanctions. 

Kuvera made a presentation under the confirmed LC concerning a cargo that was carried onboard the Omnia. During an internal sanctions screening, the vessel showed up in the Bank’s internal ‘Master List’ of entities and vessels determined to have a sanctions nexus. 

Whilst the Bank was unable to identify the beneficial owners of the Omnia, it relied on certain red flags concerning the vessel’s ownership. In particular, the vessel was previously called the Lady Mona, and its beneficial owners and technical operators had Syrian links. 

After her name changed and she received a new registered owner, it became impossible to ascertain the beneficial owners of the vessel or her technical and ISM managers. OFAC also issued guidelines and advisories placing US persons on notice of deceptive shipping practices undertaken to evade US sanctions. 

These practices included changing the names and registered owners of vessels, and using layered ownership structures to mask the fact that the ultimate or beneficial ownership of the vessels rested with sanctioned entities. 

OFAC specifically identified changing vessel names as a common evasive practice in relation to vessels owned by Syrian entities.

The Bank led uncontradicted expert evidence (Kuvera not having led any expert evidence) that OFAC would have found a breach of US-Syrian sanctions if the Bank made payment under the LC in respect of a cargo carried on the Omnia in the circumstances. 

Are red flags enough? 

In the first instance, the High Court found that OFAC would have found that payment under the confirmed LC would amount to a breach of sanctions.

It reached this conclusion on the basis of the Bank’s expert evidence, which highlighted (among other things) that the red flags in OFAC’s guidelines concerning masking ownership of vessels also applied to the Omnia. 

For the same reasons, the High Court was also independently satisfied that paying Kuvera would have amounted to a breach of sanctions. 

On appeal, the Court of Appeal held that the enquiry of whether a vessel is subject to any applicable restriction should be determined on an objective basis without any (potentially speculative and arbitrary) extrapolation of third-party input from entities such as OFAC. 

The court highlighted that while the court had to approach the question of the vessel’s ownership on a balance of probabilities (requiring a more than 50% chance of a Syrian connection), OFAC was not constrained by similar rules of evidence. 

The detection of red flags highlighted in OFAC’s advisories with respect to the ownership of the Omnia was found to be inconclusive circumstantial evidence, which created at best, an unresolved possibility that the Omnia may be caught under America’s Syrian sanctions.

The court also found it relevant that the Bank had taken a decision on its own risk assessment, preferring to be sued by Kuvera than being found by OFAC to have breached sanctions, without having objectively assessed the likelihood of the vessel having Syrian connections. 

Such a decision could not be justified simply because a sanctions clause had been inserted into the confirmed LC. The Bank still had to prove a breach of the sanctions referred to in the sanctions clause.

The vessel’s new registered owner was a Barbados entity, and her technical and ISM manager was a UAE entity. 

The key question before the Court was whether the bank had shown that the Omnia, under her new registered ownership, remained under Syrian beneficial ownership. 

Regarding this, the Court found that the Bank had not displaced the prima facie inference of ownership arising from a registered non-Syrian owner. 

It was not sufficient to suggest that just because information on her beneficial owner or the beneficial owners of her technical and ISM manager was not available, it must follow that there is some masking or concealment of beneficial ownership. 

The suggestion that a registered owner may be a shell company was inconclusive.

Legal analysis: The need for objective assessments

Certainty of payment continues to be a guiding touchstone and a bank seeking to withhold payment on account of sanctions would have to objectively show how the payment constitutes a breach of the applicable sanctions. 

It is clear that a subjective assessment by a bank through its own risk assessment is not sufficient (e.g., a decision justified by a preference to be sued by the beneficiary rather than being penalised by OFAC).

Critically relying on OFAC’s guidance might not in itself be sufficient to establish that objective requirement to justify non-payment. 

A sanctions clause construed by reference to an objective and identifiable set of laws which apply to the bank would be more certain, but would still erode some of the commercial certainty that LCs offer. 

This is because a breach of sanctions is not always clear-cut. Barring the unlikely instance of a decision from the courts of the relevant jurisdiction on the sanctions in question and on similar facts, questions of interpretation of the sanctions and their application to the facts are bound to arise.

Whether foreign sanctions are in fact breached can be a thorny question of applying the relevant sanctions laws to the facts. 

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