2019 ITFA ANNUAL CONFERENCE: 5 THINGS WE LEARNED by Shannon Manders, ITFA Consultant

ITFA’s Annual Conference, hosted this year in Budapest from 4 – 6 September, brought together a wide range of industry participants. In three days, market trends, regulatory updates, alternative finance solutions and fintech innovation were just some of the topics discussed. The 270 conference delegates also had a chance to learn about the ways in which ITFA is evolving as a trade association as it works with, and for, its members. In this post-event wrap-up, we unveil just some of the association’s new initiatives that were unveiled at the event. 

ITFA has hired a lobbyist for the first time

Delegates learned that since the start of the year ITFA has been engaging in its own advocacy work on behalf of its members and the wider industry, and to that end has been co-operating with Hume Brophy – a Brussels-based consultancy specialised in European public affairs – to ensure that policymakers and regulators are well-versed in the relationship between banking and insurance, and the interests that ITFA represents.

ITFA aims to ensure that when the finalised Basel recommendations are implemented into European law in a few years’ time, the policymakers take into account the specificities of the association’s market, so that unwanted, market-disruptive consequences are avoided.

“These consequences could have a serious impact on the co-operation between banks and insurers,” said Silja Calac, head of ITFA’s Insurance Committee, speaking at the conference. “That’s why we decided we need to become more active – just responding to consultations is not enough.”

Already, Hume Brophy has helped ITFA to improve its visibility with various European institutions, including De Nederlandsche Bank, the French Permanent Representation in Brussels, the Head of Unit Banking Regulation and Supervision of DG FISMA European Commission, the German banking authority, BAFIN and the French Ministry of Economy and Finance, and present its case to key stakeholders within the so-called Basel 4 implementation process.

In her conference presentation, entitled The corridors of power: how to lobby effectively in Brussels, Hume Brophy account director Lucie Binova outlined the ITFA and Basel timeline, explaining that the process is still in the preparation stage – ie, before the European Commission tables the legislative proposal that will implement Basel.

It is a crucial stage in the process. “The preparation stage is essential – you have to identify your goal and where you are heading. What do you want to have in the text in three, four, five years? You also need to understand who are the stakeholders, competitors and parties to align with,” Binova said.

The next stage is that of negotiation, and is likely to begin around June 2020, once preparations have been concluded, and take anything between 12 and 36 months. During this period the Commission text is on the table and has been sent to the Council of the EU and the European Parliament for negotiation. “It will be a serious discussion because it will be about how many more billions the banks in Europe will need to raise in terms of capital,” Binova noted.

The last stage – implementation, likely to occur in 2022 – happens once the CRR III and CRD VI legislative text is published in the official journal. But even then, the process is not over, as the implementation procedure needs to be monitored to ensure that it is carried out correctly.

“We spend a lot of our time as a trade association helping to improve the environment in which we operate,” said ITFA Chair Sean Edwards in his opening address, when introducing this new development for the association. He added that in addition to lobbying for changes in Basel, ITFA would be exploring other ways in which it works with Hume Brophy.

ITFA has produced new standardised documentation – aimed at bank and insurance co-operation

The new ITFA Unfunded Master Risk Participation Agreement was unveiled for the first time at the conference and discussed at length in a session led by Silja Calac, head of ITFA’s Insurance Committee and Geoff Wynne, head of Sullivan’s Trade & Export Finance Group.

The new MRPA is primarily for transferring payment risk in trade transactions for surety providers and the insurance market, and comes on the back of requests from ITFA members for more standardised documentation in this particular area.

The document was put together by an ITFA Insurance Committee drafting group which included Silja Calac and Alexandra Priess from Swiss Re; Geoff Wynne and Hannah Fearn, Sullivan; Natasa Ruiter and Ron van Staten, ING; Ludovic Chérioux, TokioMarine HCC and Manuel López and Robert Ling from Marsh JLT Specialties.

Sullivan advised the working group on the launch of the new document and the accompanying user guidelines, and will be issuing a capital requirements regulation (CRR)-compliant legal opinion shortly.

“Following the major updates to the New York and English law BAFT MPAs in 2018/19, this new document will help banks and insurance companies to collaborate and better understand risk mitigation of trade finance assets, whether they are a seller or a participant in the market,” said Wynne.

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

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

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

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

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

ITFA’s Fintech Committee is evolving and helping to improve the trade ecosystem

Throughout the conference, 11 out of the 21 fintech companies that have joined the association thus far, were given the chance to share their value propositions and explain how they are able to assist industry players in running their trade finance businesses.

The work of ITFA’s Fintech Committee, headed up by André Casterman, continues to evolve as it seeks to deliver value to the membership. Whilst the Committee’s initial focus when it first set out in 2017 was on getting fintech members to share information with members at various regional events, it has since identified the need to drive increased co-operation in the wider industry – not only amongst banks and fintechs, but also amongst fintechs themselves.

“As we move forward, we see that in addition to co-operating with banks, fintechs are also starting to co-operate with each other,” said Casterman, speaking during the Fintech Morning Gym session: “This is where we are looking at doing more than the educational bit, and starting to drive, organise and streamline the co-operation with fintech players so that ITFA can facilitate, as a neutral player, some value-add in terms of improving ecosystems by combining technologies.”

As an example, a number of ITFA fintech members have begun to collaborate with fellow member INTIX, which provides data management technology. For the likes of Coriolis, Traydstream and Tradeteq, INTIX captures the transaction data, as well as master data, payments data, Swift messaging and so forth, and the related events, such as transaction AML screening, from internal back-office systems at granular level and in real time. This data is aggregated and passed on to the fintechs in a way that they require it in order to apply their specific value-added processing to it, and ultimately enable them to deliver the solution to the parties which have contracted them.

In other examples, ITFA is also facilitating the collaboration between niche fintechs, such as Traydstream, and established core application vendors, including the likes of Finastra and China Systems.

“The collaboration between fintechs and established vendors is emerging as a priority,” said Casterman. “This demonstrates that fintechs, such as Traydstream and others, are addressing specific points that are complementing the value of front and back-office applications.”

Casterman anticipates that more such partnerships will be agreed in the near future.

Another new initiative for ITFA’s Fintech Committee focuses on digital negotiable instruments. As revealed at the conference, ITFA is collaborating with member Enigio Time, a Swedish blockchain company, to create digital promissory notes and bills of exchange which will be legally compatible with accepted standards and popular digital platforms.

ITFA and Enigio will also be co-operating on a pilot project to define market-level usage guidelines, document tags, rules, legal opinions for promissory notes and bills of exchange around Enigio’s technology.

The project forms part of a new ITFA wo­­rking group for Digital Assets, which ITFA is in the process of setting up, and which will include banks, core application providers and other fintech companies.

ITFA is working on even more new documentation to improve members’ business environment

ITFA, which this year celebrates its 20th anniversary, works to improve best practice and shape rules and documentation that affect members and the industry.

Technical publications produced over the last year have included:

  • The ITFA Unfunded Master Risk Participation Agreement, as previously discussed, which caters mainly for the cooperation between banks and insurance companies/surety providers;
  • A guide to accounting and legal issues under IFRS 9;
  • A revision of guidelines for banks using CRR-compliant non-payment insurance policies;
  • Contributions to the revised BAFT Master Participation Agreement (English and NY law), including producing legal opinions;
  • Involvement in the new guidance on receivables discounting from the Global Supply Chain Finance Forum.

Over the next year, ITFA is working on a number of new projects in addition to those detailed in this article, including:

  • A document outlining guidance and best practice on structured letters of credit;
  • A template NDA for the inter-bank risk distribution market;
  • Joining forces with others on a Basel-compliant trade credit insurance template for bank-supported trade finance programmes, called the Basel III Think Tank Initiative.

More details on these initiatives will be shared with members over the coming months, including on ITFA’s new website, which will be launched shortly, and the 2019 ITFA Annual Review, out at the end of the year.

ITFA is recognising the efforts of Young Professionals with a new award

Earlier this year ITFA launched a new award aimed at giving young professionals in the trade finance industry a voice and recognising their contribution to the market.

The ITFA Young Trade Financier Award allows young professionals to showcase their ideas and their work for the benefit of the industry through the submission of projects related to trade finance.

The initiative falls under the auspices of ITFA’s Young Professionals Committee, created in late 2017. The Committee is chaired by Johanna Wissing, who will shortly be handing over to Aarti Patel, and overseen by Duarte Pedreira, ITFA board member and head of Young Professionals.

A shortlist of the three best projects was announced in July, and the creators of these projects won a free ticket to the conference in Budapest, where they were able to present their ideas to the audience before conference delegates voted for the winner.

The three projects were:

Artificial intelligence to unlock working Capital by Soulaimene Ben Lassoued, ING
In the context of increasing working capital needs as evidenced by rising global factoring volumes, supply chain finance programmes still capture a relatively small portion of buyers’ total spend, primarily due to unrealistic supplier onboarding strategies. This project aims to use predictive analytics to unlock the full potential of SCF.

As outlined by Ben Lassoued in his presentation: “Spend analysis is the backbone of a successful SCF programme, and SCF providers need to take a closer look at the buyers’ spend data in order to ensure and maximise a successful SCF programme. However, the reality of this can be challenging because of the limited time available to perform such detailed analysis, coupled with the large set of buyer spend data, as well as limited data available to benchmark these suppliers.

“My project consists of using a supervised machine learning tool to solve these constraints and provide a more accurate spend analysis, thus unlocking the full benefit of a SCF programme. The machine learning tool will use and connect to various data sets and APIs in order to more accurately benchmark suppliers and predict their likelihood to join the SCF programme.”

This, he said, will ultimately lead to increased buyer procurement involvement, will result in a stronger buyer-supplier relationship, and will maximise the success of a SCF programme.

A brief guide on credit insurance, Matija Vodoplav, BNP Paribas
Aimed at both new market entrants and seasoned professionals, this project offers a comprehensive analysis and explanation of the major regulatory, legal and practical issues pertaining to the use of insurance as a credit risk mitigant by the banking industry.

“I discovered that despite the massive size of the credit insurance market, and the growing importance of this instrument of credit risk mitigation for the banking industry, it was not easy to find a single comprehensive guide – a document – that would introduce and explain to me what it was,” said Vodoplav, in his presentation at the conference. “So I created a single comprehensive guide that on hand includes all the relevant information that I collected from all the different papers and documents provided by relevant regulators, industry associations, major industry stakeholders, brokers, insurers, banks, and also included expert analysis provided by international law firms and legal documents, and on the other hand also included considerations relating to different questions and issues that I came across while working in this field every day.”

WINNER: A guide to trade, Alero Arubi, Crown Agents Bank; Charlotte Prior, GIB UK; Nigel Atta-Mensah, Crown Agents Bank
In a world with a US$1.5tn trade finance gap and an equally vast knowledge gap, this project explains the trade dilemma (the interactions between buyers and sellers and the issues they face), associated risks (transport, currency, documentary and country) and gives basic understanding of the products that underpin trade finance. The aim of the project is to educate and engage other participants interested in trade finance, with the ultimate aim of contributing towards narrowing the knowledge gap in the industry.

“When researching trade finance, we found that textbooks and articles were often very long-winded and full of industry jargon that we didn’t understand,” said Prior, during the trio’s conference presentation. In order to simplify the topic, the team divided trade finance products into three sections: non-structured funded, non-structured unfunded and structured funded. “We then looked at how the products support the trade cycle, mitigate risks, and how all participants use the products to receive financial support.”

The group also gave consideration to topics outside of this remit, including syndications and Islamic finance.