TFG Issue 27: Trade Finance Talks Magazine – “Is global finance approaching a ‘new frontier’?” (The Sibos edition) 

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BAFT is featured in two articles in Trade Finance Global’s latest issue. To read the full articles, click here.

“BAFT Strategic Independence in an era of geopolitical complexity“

After more than two decades under the American Bankers Association (ABA) umbrella, the Bankers’ Association for Finance and Trade (BAFT) is charting a new course as an independent organisation. The
separation, effective September 2025, will be in response to an increasingly fragmented global financial
landscape.

Try to conceptualise the financial landscape of 1921. In the direct aftermath of the First World War, many European economies were burdened by war debts and reparations, particularly Germany under the Treaty of Versailles; the US emerged as the world’s leading creditor nation, shifting the financial centre of gravity from London to New York; global trade and investment were disrupted; and the gold standard, though still influential, was under strain as countries struggled to stabilise their currencies.

Also in 1921, the Bankers’ Association or Finance and Trade (BAFT) was established, uniting 10 banks in
midwestern US to expedite business transactions of their international trade customers….

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“5 takeaways from the BAFT Global Annual Meeting 2025: The tug-of-war between localisation and collaboration”

Navigating the trade finance landscape, with constant dodgeballs in the form of geopolitical tensions,
regulatory requirements, and threatening technology, requires considerable agility. But this year’s BAFT Global Annual Meeting, in Washington, DC, revealed the considerable opportunity in times of turbulence.

Navigating the trade finance landscape, with constant dodgeballs in the form of geopolitical tensions, regulatory requirements, and threatening technology, requires considerable agility. But this year’s BAFT Global Annual Meeting, in Washington, DC, revealed the considerable opportunity in times of turbulence…

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Via Global Trade Review by Jenny Messenger

Baft (Bankers Association for Finance and Trade) and other industry bodies have urged EU member states to be consistent in implementing the Capital Requirements Directive (CRD) 6 to avoid disrupting cross-border financial services.

CRD6 is the latest iteration of the directive that requires banks and investment companies to put aside capital as insulation against financial shocks, and will ensure EU firms are aligned with outstanding aspects of Basel 3.

Previously, banks headquartered in non-EU countries could provide services like loans and guarantees in the EU without a physical presence by relying on cross-border waivers.

But changes under the regulation will bring in the branch requirement, meaning that third-country banks and large investment firms must operate through locally licensed branches, unless an exemption applies.

The European Commission published CRD6 in June 2024, and the directive must be transposed into the national law of each EU member state by 10 January 2026. The branch requirement will enter into force from 11 January 2027.

Yet some countries’ proposed legislation differs from the CRD6 text in “several significant areas relating to the branch requirement” and the activities that are exempt from it, the industry groups say.

Alongside Baft, the position paper is supported by UK Finance, the Bank Policy Institute, the Swiss Finance Council, the Loan Market Association, the Association of Foreign Banks and the Japanese Bankers Association.

“A national transposition of the branch requirement that omits or unduly narrows these exemptions and carve-outs is not aligned with the intended scope” and would “introduce uncertainty and unnecessary risk to the stability of the local banking market”, the paper says.

The exemption covers core banking activities that involve inter-bank business, intragroup business or reverse-solicited business – where a client contacts a firm first.

It also applies to core banking services, including ancillary services like taking deposits or granting loans, related to the Markets in Financial Instruments Directive (Mifid).

“We would advocate that all member states ensure that they faithfully transpose the branch requirement in this regard, ensuring that core banking services connected with Mifid services are exempt,” the paper says.

The branch requirement also does not apply to existing contracts entered into before 11 July 2026.

Custody services, which enable corporates and institutional investors to hold international assets and settle cross-border transactions, could be particularly at risk if member states’ legislation is imprecise.

“Lending by custodians is an intrinsic part of transaction settlement and, therefore, integral to the smooth functioning of capital markets,” the paper notes.

Other consequences of a fragmented system could be interruptions in banking services for EU clients, higher costs for service recipients and fragmentation of liquidity pools.

There is also the risk that European recipients of third-country core banking services could move out of jurisdictions with reduced flexibility, the paper adds.

In response, the industry groups have recommended that ambiguities over the exemptions be clarified.

For example, they argue the follow-on right in reverse solicitation – which covers products or services that are closely related to those initially requested by the client – should be explicitly referenced.

The associations’ position paper includes sample text to make sure member states harmonise the regulation of cross-border banking services and avoid “gold-plating” the legislation.

Uncertainty over CRD6 is the latest challenge arising in the EU’s implementation of the Basel framework.

Banks last year were spared what they said was a potentially significant blow to trade finance when the EU decided not to implement parts of the framework that would have more than doubled capital treatment for off-balance sheet trade finance instruments.

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WASHINGTON, D.C. (September 23, 2025) – BAFT, the leading global financial services association for international transaction banking, has released a groundbreaking white paper titled “The BAFT G20 Global Roadmap: Accelerating Economic Stability for a Resilient Future.”  Developed by the BAFT G20 Principles in Payments Working Group, the paper demystifies the structure, purpose, and measurable goals of the G20, while outlining its critical influence on global financial stability, sustainable growth, and the transformation of cross-border payments. 

As economic interconnectedness and digital innovation reshape the global financial system, the white paper provides clarity on the G20’s evolving priorities—from fostering macroeconomic coordination and climate resilience to driving real-world progress in payments cost reduction, speed, transparency, and accessibility. 

“This white paper is the first in a series that underscores BAFT’s commitment to advancing financial system modernization in line with global public policy goals,” said Deepa Sinha, SVP of Payments & Financial Crimes of BAFT. “By unpacking the G20 principles and cross-border payments roadmap, we aim to empower financial institutions, regulators, and payment providers to collaborate more effectively in building a resilient, inclusive, and interoperable global payments ecosystem.”

Key highlights of the white paper include: 

  • A comprehensive overview of the G20’s history, structure, and principles in areas such as digital transformation, sustainable development, financial consumer protection, and anti-corruption. 
  • An in-depth look at the 2020 G20 Roadmap for Enhancing Cross-Border Payments, including the roles of the Financial Stability Board (FSB) and the Committee on Payments and Market Infrastructures (CPMI). 
  • Progress and ongoing challenges in meeting the G20’s four key metrics—cost, speed, access, and transparency. 
  • Practical implications for both public and private sector actors, including banks, non-bank payment providers, market infrastructures, and regulatory authorities. 

The paper also aligns BAFT’s advocacy and education efforts with the G20’s global objectives, highlighting the importance of harmonized standards, regulatory consistency, and public-private partnership in delivering meaningful outcomes for economies and end users alike. 

BAFT invites stakeholders across the payments and trade finance communities to engage with this timely white paper, and to participate in the ongoing dialogue as the series continues with deeper dives into each of the G20 cross-border goals.

To access the full white paper, visit www.baft.org 

About BAFT 
BAFT is the leading global industry association for international transaction banking. Bringing together financial institutions, service providers, and the regulatory community, BAFT provides thought leadership, advocacy, education, and a platform for collaboration to promote sound financial practices that foster innovation, efficiency, and commercial growth. The association engages in a broad range of issues affecting transaction banking, including trade finance, payments, and compliance, helping members navigate a rapidly evolving global landscape. For more information about BAFT, visit baft.org, or follow BAFT on X (Formally Twitter), LinkedIn, and YouTube. 

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To explain the impact tariffs have on global trade and the strain they cause on banks, Trade Finance Global (TFG) spoke with Craig Weeks, Senior Vice President of BAFT.

Via Trade Finance Global by Craig Weeks

Since US President Donald Trump came to office in January 2025, not a day goes by without some mention of ‘tariffs’ in the news. International markets have reacted to landmark shifts initiated by US President Donald Trump’s new tariff policies. Tariffs have evolved from a more specialised economic tool to one gaining political and ideological ramifications, generating renewed and expanded interest in them.

At the 51st Annual International Trade and Forfaiting Association’s (ITFA) Conference in Singapore, Mahika Ravi Shankar, Deputy Editor at Trade Finance Global (TFG), sat down with Craig Weeks, Senior Vice President for Trade at BAFT (Bankers Association for Finance and Trade), to discuss the impact of tariffs from a banking and trade finance perspective. 

What are tariffs?

Tariffs have historically had two essential uses: raising revenue for the government or protecting domestic industries by making foreign goods more expensive. Tariffs can be imposed on imports or exports. 

There are three main types of tariffs: 

  • Ad Valorem tariffs are added as a fixed percentage of the total value of the imported product. 
  • Specific tariffs are a fixed monetary charge added to each unit, such as a kilogram, a ton, or a pair, which operates regardless of the total value of the product. 
  • The last type, compound tariffs, is a hybrid of the two. 

Tariffs differ in aim and impact from other trade barriers such as quotas and sanctions.

Quotas are a tool to cap foreign competition by limiting “the quantity of a product that can be imported or exported during a certain period, ” Craig Weeks explained. Restricting the total number of goods from one or several countries drives up the cost of that import, making domestic products more attractive. 

Quotas serve an economic purpose for governments. By comparison, sanctions, another form of trade barriers, are often used as political and ideological tools.

“Sanctions are broader restrictions and sometimes total bans on trade with a specific country, company, or individual”, explained Weeks. “People use sanctions to pressure governments to punish bad behaviour or to restrict access.”

Breaking down the differences, Weeks said: “Tariffs impact the cost, quotas restrict the quantity, and sanctions restrict who.”

Impact on trade finance and financial institutions 

This year, financial institutions involved in trade finance have been heavily impacted by US tariff developments in several ways. 

Firstly, tariffs on key inputs increase invoice values, necessitating increased working capital and larger credit value facilities, including credit lines, letters of credit, and pre-export or import loans. This increases “the overall value of supply chain finance programmes”, explained Weeks.

Secondly, tariffs cause increased credit risk, a side effect of larger sources of credit requirement, and borrowers either try to absorb tariffs, or if unable to, pass them on, reducing the banks’ margins. Some contracts now also include a Material Adverse Changes (MAC) clause, allowing a party to exit or renegotiate an agreement if a significant adverse event increases volatility. 

Thirdly, compliance risks have increased due to “the need to interpret the intent of trans-shipment and alternate supplies, which raises the risks of misdeclarations and misunderstood rules of origin”, explained Weeks. 

Fourthly, increased operations risk due to heightened documentation checking and compliance requirements and unclear mitigating protocols. “This is new territory for a lot of banks”, said Weeks, which can increase operations risk as banks are “feeling their way”.

And fifth, insurance premiums have increased, which hikes up the overall cost of business. 

Impact on SMEs

Tariffs have exacerbated the trade finance gap, particularly for small and medium-sized enterprises (SMEs) in emerging economies. Increased working capital demands, to fund the same-sized shipments, are more challenging to finance for less capitalised, smaller banks that cannot proportionally expand credit facilities. 

“It becomes a vicious cycle”, Weeks said, as “increased uncertainty about supply chains (causes) banks respond with stricter credit terms, higher collateral requirements, shorter tenors, and tighter covenants.”

“This negatively impacts SMEs disproportionately as they are the least able to pass along the tariff impact onto their client”, he added.

In the US, big box stores have been more able to absorb the impacts of tariffs than smaller suppliers, forcing smaller companies out of business, who had no choice but to pass on increases to clients.

US tariffs have already significantly impacted SMEs globally. For instance, by the end of March this year, following the announcement of President Trump’s tariffs, two South Korean automotive suppliers had declared bankruptcy despite reporting high turnovers. Notably, both filed for bankruptcy before Trump’s 25% tariffs were due to take effect on 2 April.

South Korea’s example opens a broader issue of the impact of the anticipation of tariffs. On 8 August, the US and China announced that they had agreed to a 90-day extension on their tariff break, the third similar extension this year. However, despite the delayed and postponed impact of many of Donald Trump’s tariffs, financial institutions acted to prepare and reacted to uncertainties.

“They’ll front-load inventory purchases or shipments, getting it now before the tariff takes effect, making advanced payments, reducing tenors, accelerating discounting”, said Weeks. Front-loading refers to bulk ordering before tariffs take place, before prices increase.

Tariffs have also caused a transition away from letters of credit (LCs), which have grown increasingly expensive under the added complexities caused by Trump’s tariffs, towards other forms such as documentary collections or open accounts, both of which now have broadly lower associated costs.

Perhaps the most aggressive form of tariff anticipation responses has been proactive derisking, which Weeks explained involves “moving your suppliers to other countries or changing your customer base from one country to another to get out from under this uncertainty”.

Trade wars and retaliatory tariffs

One of the most significant problems caused by Donald Trump’s tariffs is increased market uncertainty. Buyers and sellers are left unclear on what to buy, what to sell, how much to buy, how much to sell, and when to buy. 

The uncertainty in the market reduces global market efficiency, complicating the decision-making matrix behind transactions. Commenting on the additional risks that trade wars can pose, Weeks said: “Trade wars inject cost, uncertainty, and compliance complexity into supply chains. The risks and effects cascade exponentially onto SMEs.”

Tariffs: What’s next?

This year has seen a political demonstration of new and old economic alignments between nations. China, in particular, has taken centre stage, positioning itself as the source of global financial stability in the face of US uncertainty. China signed several huge deals this week, indicating an economic alignment and desire to reduce uncertainties. 

On Friday, Pakistan signed a £6.29 billion new investment agreement with China and unveiled the next phase of the China-Pakistan Economic Corridor. Russia and Beijing agreed to build the Power of Siberia 2, a natural gas pipeline between the two countries, bringing 50 billion cubic metres of gas to China every year, doubling the 38 billion cubic metres capacity of the current Power of Siberia pipeline.

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Weeks explained that tariffs have caused “countries to completely rethink their strategic alignment when it comes to who their economic friends are”. He added that a side effect of uncertainty is that companies and countries had stopped dealing in terms of strategy “for the next year”, but now were broadly discussing “tactics for dealing with the next two weeks”.

But they are something we have to start getting used to. Governments are growing increasingly accustomed to the revenue tariffs generated, meaning we will unlikely see a sharp decline in tariff rates soon.

“​​Tariffs go up by the elevator and they come down by the stairs very, very slowly”, summarised Weeks.

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BAFT supports extending T2 operating hours in a measured, opt-in, and phased manner to enhance liquidity management, support instant and cross-border payments, and keep traditional payment rails competitive with new technologies. However, it emphasizes that full 24/7/365 operations would impose major costs, risks, and system changes, and should only proceed with clear demand, industry alignment, and long notice periods. BAFT urges careful consideration of operational resilience, liquidity sourcing, cybersecurity, and coordination with T2S, recommending feasibility studies, staggered implementation, and safeguards like circuit breakers and central liquidity bridges.

READ MORE HERE >

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BAFT submitted a comment letter to urge regulators to expand collaboration across banks, fintechs, telecom, social media, and law enforcement — both domestically and internationally — to effectively combat payments fraud. The association calls for real-time data sharing, clearer liability standards, and safe harbor protections so banks can pause suspicious transactions without fear of penalty. It also recommends updated regulations, industry-wide fraud standards, and consumer/business education campaigns to strengthen prevention, detection, and mitigation efforts.

READ MORE HERE >