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Trade Finance, Crime, and Risk

On the 9th of September 2021, a letter was sent to CEOs in the trade finance space regarding the expectations of the Financial Conduct Authority and the Prudential Regulation Authority on how entities in the sector should be conducting their business in the UK. These expectations were set out to compliment the existing stipulations already in places such as those of the Joint Money Laundering Steering Group, and the extant ones of the PRA and the FCA themselves. With a number of high-profile trade finance organizations that have failed within the last 18 or so months, what does this mean for the sector as a whole?


The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are the UK’s two top banking regulators. The FCA is a body independent of the UK government, regulates financial firms, provides services to consumers, and maintains the integrity of the financial marketplace throughout Britain.

The PRA is the successor to the Financial Services Authority and sets standards and supervises financial institutions at the operational level. Once, wholly owned by the Bank of England, its functions have now been absorbed into it and are executed through the Prudential Regulation Committee.

Toward the beginning of September this year, in a joint letter from the FCA and the PRA to CEOs, expectations were set out as to how trade finance entities were to operate under UK jurisdiction.

The letter was signed off by two directors of the FCA (Edwin Schooling Latter and David Geale) and two directors of the PRA (Rebecca Jackson and Melanie Beaman), who covered such departments as the Investment, Wholesale, & Specialist Supervision, the Retail Banking & Payments Supervision, the Authorisations, Reg Tech & International Supervision, and the UK Deposit Takers Supervision respectfully

Figure 1: Summary of the FCA/PRA letter where there are issues or areas requiring attention that was aimed at CEOs working in the trade finance sector


The letter itself covered four main areas (figure 1): Risk Assessment, Counterparty Analysis, Transactions Approval, and Transactions Payment. Some of the areas shown are perhaps more obvious. For example, the media tends to cover at length issues such as financial crime risks, like the money laundering and fraud of organized crime, or the funding of terrorism, part of the wider risk assessment umbrella Perhaps less obvious in comparison, is the call for extra credit scrutiny of all trade finance counterparts.

Intuitively, it is necessary and a long-standing practice, to assess the credibility of an entity that is to borrow money, but the letter calls upon the industry to assess the credibility of all parties that have an interest in the transaction.

Another interesting area highlighted by the letter is goods that have dual uses. Normally, this refers to technology – hardware and software – that can be employed militarily or by civilians both, although it can apply to other commodities. A sizable chunk of the letter relates to the lackluster processes carried out by trade finance entities.

Poor focus on particular areas (fraud and again, dual-use goods) for one. Equally, poor evidence of both the rationale behind risk exposure and also assessing the mitigating controls of that risk. The letter also points to the lack of specificity regarding client relationship risk (the client’s industry say, or their geography, and then how this impacts due diligence measures). Arguably, it could be said that a good deal of the letter makes simple good sense (especially in regard to transactional approval and payment).

Unfortunately, much of that good sense can get lost in the drive to initiate what appears to be a great deal and the possibility of bountiful profits. Having said that, there are undoubtedly a number of good actors out there with the noble intention of bringing fiscal freedom to places that characteristically have to operate without it. This zeal though has to remain appropriate and conducted with integrity.

Sending a Message

The letter itself makes no mention of the actual companies that have collapsed. Of note, and no doubt within their minds when writing it, was the failure of Greensill Capital – a juggernaut of supply chain finance - in March this year, an event that sent many businesses scrambling to regroup. Credit Suisse was one of them. They have had to repay billions of dollars to investors. Last year, as noted by Bloomberg, the oil trader Hin Leong Trading (Pte) Ltd collapsed. HSBC Holdings PLC among others were left trying to recover around $3.5 billion. Further inspection of the failure revealed that the founder of the company, Lim Oon Kuin, had allegedly committed fraud and that years of losses had been hidden from view.

Michael Ruck – a partner at law firm K&L Gates and a previous member of the FCA’s enforcement division – said to the Global Trade Review that should a regulator or similar body take pains to send such a message as this to CEOs of businesses, the subject should “jump to the top” of their list of priorities, because they can be sure the FCA would be prioritizing the issue, examining it both presently, and into the future. The FCA will be vigilantly watching businesses in the sector to see if they are fulfilling their responsibilities. Indeed, Ruck mentions that anti-money laundering and financial crime will be prominent since the FCA has taken a greater interest in these areas in more recent times. He said, “…so when you see a ‘dear CEO’ letter referring to financial crime and AML, that needs to be a big focus for the work done on the back of receiving that letter.” He even alludes to potential enforcement action taking place.

Not long after the FCA and PRA had issued their open correspondence to the wider trade finance CEO community, British finance minister Rishi Sunak ordered: “immediate reviews” of the country’s financial regulation (as reported by Reuters). The proclamation was apparently made in light of Greensill Capital’s caving-in. Sunak said – in regard to reforms of the finance regime surrounding banks – the treasury is working with the PRA and FCA to surmise “how the change of control applications are dealt with, and what changes might be considered”.

So, it seems Michael Ruck was on the money when he was mentioning how the issues raised by the FCA/PRA letter should be flung to the top of each concerned CEO’s agenda. What with Mr. Sunak’s prompt sponsorship and involvement (despite his possible alleged role in the former Prime Minister David Cameron-Greensill Capital debacle), influential people within the trade finance space should indeed place the issues in the letter high on their company’s operational priorities

About Us

Nu-Credits is a trade finance market place making trade finance accessible to credit-worthy SMEs by connecting them to global lenders. We provide blockchain infrastructure and integrated data solutions to assist lenders in underwriting trade finance credits to SME’s Nu-credits differentiates itself by addressing major pain points in the trade finance industry through its blockchain-enabled platforms such as credit risk management, document collection process, technology adoption, business capacity, client engagement, and external environment instability.

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