Finance

Letter: Crackdown on commerce finance dangers ravenous firms of capital

Letter updates

Your protection of the “unusually blunt” letter despatched by the Monetary Conduct Authority and Prudential Regulation Authority to financial institution chief executives relating to their commerce finance companies underscores the comprehensible goal of UK regulators to reinforce monetary crime controls within the wake of a number of high-profile market failures (“UK regulators inform banks to enhance commerce finance”, Report, September 10).

It’s, nonetheless, essential to position this intervention in a broader context in two essential methods for the sake of the true financial system.

First, in depth media protection of the collapse of commodity companies and boutique financiers in current months dangers distorting understanding of the true dangers concerned in commerce financing. Information to be launched by the Worldwide Chamber of Commerce later this month will present that default charges on frequent commerce finance offers remained extraordinarily low in 2020 regardless of the financial results of Covid-19 — with impairments on lower than 0.3 per cent of all transactions globally. In different phrases, multimillion greenback fraud circumstances might make for good media copy, however they’re really the exception in an in any other case secure and low-risk market.

Second, a number of the vulnerabilities recognized by UK regulators can’t be solved by banks in isolation.

To take one instance, your article rightly cites the “archaic paper-based methods” on which most commerce finance transactions rely. However these can solely be rendered totally digital — and thus extra resilient to fraud and monetary crime — if coverage reforms are enacted throughout all main buying and selling jurisdictions to offer full authorized impact to digital commerce paperwork.

In comparable vein, synthetic regulatory restrictions proceed to inhibit the sharing of monetary crime intelligence between banks.

Seen from this angle, the trouble to deal with monetary crime dangers in commerce finance would finest be pursued by regulators in a proportionate and collaborative method.

To do in any other case — pushed by a slender give attention to uncommon however high-profile market failures — dangers impairing the movement of important capital to companies at an important second within the restoration from the coronavirus pandemic.

John WH Denton
Secretary Common, Worldwide Chamber of Commerce, Paris, France

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