Media Appearances

Analysis: BAFT’s Burwell on New York Digital Trade Reforms

Via Global Trade Review by John Basquill

New York legislators have taken an important step towards digitalising trade in the state, adopting reforms that provide a legal basis for electronic records and digital assets. 

Adopted by the Assembly and Senate on June 11, the reforms bring New York in line with the Uniform Commercial Code (UCC), a model law amended in 2022 to incorporate digital trade documents and other emerging technologies. They will become law once the amending bill is signed by Governor Kathy Hochul. 

Electronic bills of lading have been recognised as title documents in New York since 2014, but the latest reforms are broader in scope, applying to electronic versions of negotiable instruments and digital assets. 

GTR speaks to Tod Burwell, president and chief executive of Baft (Bankers Association for Finance and Trade), about the background to the reforms, the role of the association in bringing about change, and what the new-look legal framework means for US digital trade. 

 

GTR: What is the background to these reforms, and Baft’s role in helping bring them about? 

Burwell: The broader effort to provide a legal framework for digital trade originated around seven years ago, and we wrote a paper on the subject in 2018 called Code Is Not Law. At that time, there was a lot of energy around the use of blockchain as a vehicle to transform how trade could happen in the future. The paper essentially said that you need to adjust the legal framework and not just the technological capability to do trade digitally. 

Interestingly, the UNCITRAL Model Law on Electronic Transferable Records (MLETR) was published around that same time, and what we then started to see was the socialisation of that model law, and countries trying to incorporate those elements into their legal frameworks. There were a few early adopters, but the really large trade jurisdictions were a bit further behind in getting that going. 

In terms of Baft’s engagement, the International Chamber of Commerce convened a variety of stakeholders across the globe to structure a group called the Legal Reform Advisory Board. We would meet periodically to target jurisdictions where we feel we can move the needle, and for Baft, it was natural for us to be designated to drive efforts in the US. 

 

GTR: What is different about the US market compared to jurisdictions that have already fully adopted digital trade laws? 

Burwell: In some jurisdictions, it is easier to take a national approach, but the complication with the UCC is that changes have to be adopted state by state. There is no single step the federal government can take to switch from analogue today to digital tomorrow. 

Also, because legal frameworks are different across jurisdictions, you couldn’t just take MLETR and slot it into US law. The way it worked in the US was the Uniform Law Commission passed amendments in 2022, and from there the process started to drive this through the individual states. 

On Baft’s side, we have been highly engaged with the Uniform Law Commission and the bar associations that drafted the amendments to the UCC that would, in effect, accomplish what the MLETR framework was intending to do. 

 

GTR: What is state-by-state adoption like looking now, and how significant is it that New York has reached this milestone? 

Burwell: So far, there are 30 states that have adopted the changes to the UCC into law, and there are eight states – technically including New York, as we still have to wait for the Governor to put her signature on the bill – that are somewhere in the process.  

We still have some work to do in the major land port border states, like Texas and Michigan. But nine of the 10 largest seaports in the US are now governed by laws that support digital trade, and most of the international trade traffic tends to come through West Coast ports that are in states that have already adopted the UCC amendments. 

In that context, the big one from the US perspective was to get New York across the finish line. Within the US, the volume of trade that is subject to New York law is pretty substantive. 

One of the nuances with the UCC is that one state’s version will not be the same as the others. To give an example, the electronic bill of lading has been in place in New York for some time, but other forms of negotiable instruments still require paper evidence of ownership.  

One of the other nuances with the New York structure and framework is that it is a little more forward-looking in that it incorporates elements of how digital assets should be treated. The MLETR framework doesn’t really get into that, but in the UCC amendments, we’re trying to account for more than just digital documents. 

 

GTR: Has there been much impact so far in states that have introduced these changes, or is it still too early to see the benefits? 

Burwell: It’s still very early days. Getting the legal framework in place is an important milestone because that enables commercial parties to move forward more assertively with digitalising their processes. If you know that a digital version of an instrument is not legally enforceable, you might not make the investment necessary to be able to transact in that form.  

Now, this opens the window for organisations to push forward on some of those investments, and for the ones that have already done that, it enables them to progress with live electronic end-to-end transactions. 

BAFT Elects New Chair Ahead of Structural Shift

Via Global Trade Review by Shannon Manders

Baft (Bankers Association for Finance and Trade) has appointed Nick Smit, global head of financial institutions banks at ING, as chair of its board of directors for the 2025-26 association year. He succeeds Suresh Subramanian, head of North America for transaction banking at BNP Paribas, who has served as chair since 2023 and oversaw the initial phases of Baft’s transition to become an independent organisation.

Smit takes over as Baft prepares to formally separate from the American Bankers Association (ABA), effective September 1, 2025. The two organisations first announced their intention to part ways in January, citing Baft’s increasingly global footprint and the need for greater strategic alignment with its international membership.

“I really appreciate this vote of confidence by the Baft community,” says Smit in a release. “Baft has grown into the leading global organisational forum for not only trade, but payments and cash management, and working capital solutions, too. I am very much looking forward to continuing the good work done in the past as we operate and grow further as an independent organisation in the future.”

Based in New York, Smit leads ING’s global relationship management team covering US, Canada, Latin America and global banks. He brings over 30 years of international banking experience and has served on Baft’s board since 2022.

Speaking at Baft’s annual general meeting in Washington, DC, on May 5, president and CEO Tod Burwell reflected on the rationale behind the separation: “The ABA is designed to focus on US charter banks. Baft’s membership is 70% international. If you have to have neutrality from a geopolitical perspective, it is complicated to be a subsidiary of the ABA and play that role without compromising the ABA’s position.”

Also speaking at the event, Subramanian noted the extensive preparation undertaken to ensure a smooth transition: “The last two years have perhaps been the most active period for the Baft board and executive committee. A lot of heavy lifting has taken place, not only to strengthen the financial position, but also to get the pieces needed so that the transition is as seamless as possible.”

The association has stated that its core focus on advocacy, education, thought leadership and industry collaboration will remain unchanged.

“The independence affords the Baft board and membership the ability to chart a path for growth and set our own direction on the topics that matter most to our community,” Subramanian added.

Smit will be joined by re-elected officers Michelle Knowles, head of trade and working capital of Absa, as vice-chair and Miriam Ratkovicova, managing director in the anti-money laundering economic and trade sanctions practice of Deloitte, as secretary/treasurer.

The board also includes a group of senior leaders from banks, fintechs and other financial institutions across multiple regions.

Race Against Real-Time: The Evolving Landscape of US Payment Systems

Via Trade Finance Global by Deepa Sinha and Deepesh Patel

The conversation surrounding real-time payment systems is evolving quickly, and nowhere is this more evident than in the dynamic between RTP (Real-Time Payments) and FedNow, two significant players within American payments. 

To learn more about these and about the payments space in general, Trade Finance Global (TFG) spoke with Deepa Sinha, Vice President of Payments and Financial Crimes at the Banker’s Association for Financing and Trade (BAFT). 

Two payment systems, one goal

Why is a discussion around payment systems even relevant? As Sinha summarised, “There is no trade without payments.”

Real-time payment (RTP) systems represent a modern financial infrastructure designed to enable near-instantaneous money transfers between banks and financial institutions. These systems allow funds to be sent, received, and settled within seconds, 24/7, compared to the historical multi-day processing times of legacy banking systems. While primarily developed in the US, RTP technologies are increasingly gaining global traction.

Operated by a private entity, RTP has established itself among larger banks and financial institutions, building a network with extensive coverage. However, it has faced challenges with limited adoption from smaller institutions, mainly due to technical and financial requirements.

And then there is FedNow, which is backed by the Federal Reserve, and specifically designed to bridge this gap. It aims to serve smaller banks, credit unions, and financial entities that previously found RTP challenging to access due to costs or technological barriers. This resource could level the playing field, ensuring that real-time payments are within reach no matter the size of the institution.

Sinha said, “The coexistence of both RTP and FedNow could serve complementary segments, broadening the reach of real-time payments across various financial institutions, from large banks to smaller community banks and credit unions.”

While their methods and audiences may differ, their respective goals are inherently similar: to provide a faster, more accessible way for institutions and consumers to move money. Two payment systems striving for similar outcomes create an environment of competition—hopefully, a case of healthy competition that drives progress.

Sinha said, “Competition and innovation could encourage both networks to offer unique features or partnerships, and that would enhance the US payment systems competitiveness with international real-time payment networks.”

The introduction of FedNow challenges RTP to do more—perhaps lowering costs or expanding services to remain competitive. In sheer numbers, FedNow is leading: as of July 2024, more than 800 financial institutions across the US have adopted FedNow, compared with 570 on RTP.

With this, FedNow must demonstrate that it can effectively provide value to smaller institutions and address unmet needs. While two-thirds of banks aren’t signed up to RTP or FedNow, the demand is there: 63% of US corporate bankers experience significant or overwhelming demand for instant payments from their corporate customers.

The pressure to innovate is pushing both systems to introduce new features, explore unique partnerships, and strive for efficiencies that might only have been possible with the presence of a competitor. The October 2024 G20 roadmap identified the significant potential held by instant payments in making cross-border payments faster, easier, and cheaper; healthy competition between RTP systems could give rise to excellent options for businesses and consumers.

Building bridges, not walls

Yet, the story of RTP and FedNow is not just about competition; it’s also about collaboration, ultimately through interoperability. For RTP and FedNow to succeed, they must eventually learn how to communicate with one another.

Sinha said, “While RTP and Fed now use similar ISO 20022 standards, full interoperability could be complex and might take time to achieve. The two can definitely coexist, though. If interoperability is prioritised, banks could seamlessly move transactions across both networks, potentially allowing payments initiated in one network to be completed in another.”

ISO 20022 is a global standard that provides a universal language for financial services messaging, creating a common framework for exchanging payment information across different systems. By adopting this standard, RTP and FedNow are using a shared “dictionary” that potentially makes communication between networks easier, though full interoperability remains complex.

This collaboration is easier said than done. While both systems use similar standards, achieving true interoperability is complex and requires considerable coordination and compromise. But it’s worth it. If RTP and FedNow manage to bridge their systems effectively, it would mean a more resilient payment infrastructure for all users. 

Payments in a changing world

But this story doesn’t end with interoperability or competition, and it extends far beyond the US borders. As the payments landscape evolves, stakeholders cannot ignore the global context. 

With the rise of new alliances like BRICS and the exploration of alternative systems to Swift, payments are transforming worldwide. The development of RTP and FedNow is part of this larger narrative. It’s about positioning the US payment systems to be competitive globally while addressing domestic needs.

Just as speed is essential, so too is the financial system’s integrity. In a world where criminals, from money launderers to fraudsters, are constantly looking for weaknesses, providing fast, secure, and transparent payment options has become crucial to financial security. Innovations such as fraud prevention tools, regulatory frameworks, and enhanced financial inclusion lie at the core of these efforts.

Sinha said, “We’re fighting money laundering, fraud, human trafficking, arms smuggling, drug trafficking. All of these are a profound detriment to the peaceful function of our societies and communities.”

Regulatory frameworks have emerged as critical defenders in this evolving digital payments ecosystem. Standards like the Payment Card Industry Data Security Standard (PCI DSS) provide robust requirements for safeguarding financial data, mandating encryption, regular security assessments, and comprehensive compliance reporting. The EMVCo‘s global payment security standards have been particularly effective, reducing worldwide payment fraud by establishing stringent protocols for card and mobile transactions.

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Internationally, Japan pioneered real-time payment processing with its Zengin system in 1973, (though it only became a 24/7 service in 2018). Currently, over 70 countries across six continents support real-time payments. In 2022, the number of transactions reached 195 billion, representing a remarkable 63% year-on-year growth, per ACI Worldwide’s March 2023 report.

India leads the market, processing 89.5 billion transactions through its Unified Payments Interface, launched in 2016. Brazil, China, Thailand, and South Korea follow as significant real-time payment markets.

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By 2028, real-time payments are expected to constitute 27.1% of all payments globally.

With two systems working side by side, each catering to different market segments, the potential to transform how money moves across the country is immense. Their rivalry pushes both to innovate, improve accessibility, and lower costs, while their eventual interoperability could lead to a unified system that benefits everyone

By 2028, RTP is expected to constitute 27.1% of all global payments. With this capability, international trade finance will be unrecognisable, dramatically reducing transaction times and increasing liquidity for businesses.

The journey will continue as these two systems learn to paradoxically coexist, compete, and ultimately work together to improve real-time payments for everyone.

VIDEO | How WTB is Addressing Structural Barriers to Achieve Gender Parity in Finance

Via Trade Finance Global by Deepa Sinha, Deepesh Patel, and Carter Hoffman

Change is still a slow march when it comes to gender equality in the financial services industry. While incremental progress has been made, the lingering pay gap remains glaringly apparent. 

It’s easy to point to the gender pay gap as a clear-cut metric of inequality, but the reality is far more complex, hidden beneath structural barriers and cultural norms that still need to be dismantled. Addressing these challenges requires a shift in mindset, a concerted movement to lift each other up, and a willingness to initiate bold, practical actions.

Trade Finance Global (TFG) spoke with Deepa Sinha, Vice President of Payments and Financial Crimes at the Banker’s Association for Financing and Trade (BAFT), to learn more about how these deeply rooted issues took centre stage and discuss strategies for turning awareness to action.

The ongoing fight against the gender pay gap in finance

The gender pay gap is a longstanding issue that has haunted the finance industry for decades. Today, many financial institutions are still paying women significantly less than their male counterparts. 

It’s not just about pay. Financial services have been slow to recognise the full value of women’s contributions, often relegating them to roles where opportunities for advancement are limited. The pay gap is just a glaring symptom of an underlying condition that involves issues around opportunity, inclusion, and cultural change.

However, awareness of the gap is growing, and that is the first step toward change. 

It’s not enough to simply notice the disparity; action is needed. There are now efforts within the financial services industry to develop focused and structured initiatives that provide women with the tools they need to succeed. 

Whether through mentorship programmes, leadership development opportunities, or actively engaging women in thought leadership, these steps, while not revolutionary, are certainly evolutionary—nudging the industry closer to fairness. 

Women’s unique strengths in transaction banking

But what exactly do women bring to transaction banking that might have been overlooked? There’s something to be said about the unique strengths that women often bring to this field, particularly in areas like payments and financial crime compliance. Women approach challenges differently, and this difference is precisely what the banking sector needs.

Sinha said, “Research suggests that women often approach risk more cautiously, which can be a critical advantage in transaction banking. This perspective helps create robust risk assessments, reducing potential exposure to fraud and other financial crimes.”

Beyond risk management, empathy plays a key role in enhancing customer interactions. Women’s emphasis on empathetic communication builds trust—a quality that cannot be overstated in the world of payments and finance. 

Sinha said, “This empathy allows them to address customer pain points with more nuanced solutions. That’s crucial in transaction banking where trust and relationships are essential.”

This empathy, combined with a detail-oriented approach, becomes especially powerful in fields like compliance. When it comes to anti-money laundering efforts and screening for suspicious activity, an eye for detail can mean the difference between catching a subtle sign of wrongdoing and letting it slip through the cracks.

Tearing down barriers to gender equality

Promoting gender equality in an industry like finance requires confronting structural, cultural, and individual barriers head-on. This means building programmes that mentor and sponsor women while simultaneously addressing the systems that have kept women from advancing for far too long.

Sinha said, “Sponsorship or championship, in particular, where senior leaders actively advocate for women’s advancement, is essential for promoting women in decision-making roles. These programs provide women with the guidance, visibility, and advocacy necessary to advance into senior leadership, where gender representation is still severely limited.”

Mentorship is a key piece of this puzzle—not just traditional mentorship—but reverse mentorship, where younger professionals offer insights to senior leaders, allowing for a two-way exchange of knowledge. By creating spaces where women can be visible, their voices heard, and their work recognised, these types of initiatives can help bring true representation into leadership roles.

But perhaps just as important as these programmes is the need for flexible and inclusive work policies. Many in the workplace balance professional aspirations with caregiving responsibilities, whether for young children or elderly family members. 

Sinha said, “If I have young children that I need to leave the office for at five o’clock every day to go take care of, but I’m able to hop back online later after the kids are down for the evening, that flexibility is invaluable. It’s priceless. When you have a network that is similar to you but is diverse enough to understand what you’re going through, you’re all going to make it work and make it happen together. But that only comes with the relationships that we build with our peers.”

Tearing down barriers also means setting measurable goals. Accountability is crucial; organisations must set clear targets for diversity and track progress. Transparent metrics around hiring, promotions, pay equity, and leadership representation are what will ultimately keep companies honest about their efforts. 

The spark that became Women in Transaction Banking (WTB)

Sometimes, profound change starts with a simple idea.

Sinha said, “Just after our BAFT global annual meeting in 2023 in San Francisco, I was in an elevator discussing women in payments with Maram Al-Jazireh from Arab Bank, and I mused, ‘Why don’t we have anything for women in payments and trade?’. She replied, ‘Well, why don’t you start something?’”

What started as an innocent question became a full-fledged movement. The WTB initiative grew out of the recognition that women in the industry, especially in middle management, need more opportunities to connect, grow, and thrive.

This initiative focuses on several key areas: mentorship, education, sponsorship, and building a community where women can share experiences, learn from one another, and navigate the complexities of the banking world together. This program aims to provide women in middle management with the knowledge and skills they need to succeed.

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The journey towards gender equality in finance is ongoing. While progress has been slow, conversations are starting to turn into actions, and ideas are taking root, growing into initiatives like Women in Transaction Banking. The pay gap is still there, but it is no longer being ignored. Women are stepping into roles that are reshaping the culture of banking, bringing empathy, caution, detail, and collaboration to the forefront.

Rethinking how the financial industry operates at every level, through mentorship, flexible policies, or simply recognising the unique value that diverse perspectives bring, are steps towards a more inclusive future. 

There’s still a long way to go, but as these conversations take hold, there’s a sense that meaningful change is the natural next step.

The Journey of Sustainability: Industry-led Action

You often hear banks ask each other where they are on their sustainability “journey”. 

Via Trade Finance Global by Andrew Price

The word “journey” brings with it the connotation of something that may take a while, something that will require a lot of effort, and hopefully end in an exciting or exotic destination.  Some have well-developed methodologies and plans, while others are still relatively novices in the area.

The word also captures the progress surrounding the standards and regulations that are being developed. Normally with regulations, we see them adopted as a result of an event or crisis that has occurred: Basel III as a result of the 2008 financial crisis, AML/CFT regulations in response to Riggs Bank or the events of the 9/11 attacks. The Financial Action Task Force itself was formed in 1989 primarily as a result of concerns around money laundering connected with illicit narcotics trafficking in the 1980s.  The modern financial system in the United States was largely established in the 1930s as a result of the Great Depression.

The evolution of sustainability standards and regulations is therefore interesting to observe, particularly as the trajectory has not been traditional. Some may say climate change is a crisis, but as it’s been an ongoing process: it’s hard to identify a single date or event as a turning point. Getting consensus around whether it is a crisis can also be a challenge depending on geography, politics, and many other factors.  Yet, the industry has gelled and come to a consensus that it will make changes to address the issue. 

Progress has been internally driven

Yes, governments, standard setters, and world leaders encourage addressing the issue, but the tangible outcome has still mostly been industry-driven and not prescribed by regulation in response to a crisis. The International Sustainability Standards Board (ISSB) has given us a “common language” from an accounting standpoint, but the development of standards or regulations is really coming from the industry itself.  

The banks themselves agreed to align their portfolios with the Paris Climate Agreement to support an ambitious transition to achieve net-zero greenhouse gas emissions by 2050, with interim targets as soon as 2030.  Many have gone further and embraced the broader set of 17 sustainable development goals outlined by the UN. Those goals also incorporate environmental, social, and governance (ESG) objectives and incorporate factors such as ending poverty and hunger, reducing inequalities across countries and genders, building resilient infrastructure and sustainable cities, and promoting peace, justice, and strong institutions.

While this sets the goal or the “destination” of our journey, how we get there is still a work in progress.  Many are taking quite diverse routes on their voyage. For transaction banking, it gets even more complex.  Transactions often have a heavy reliance on global networks and supply chains, and fragmented participants are often needed to facilitate transactions.  The nature of transaction banking means that additional consideration and thought need to go into the application of sustainability and net zero principles.  Many of the non-climate-related sustainable development goals are highly dependent on transaction banking, raising the question as to whether clean and affordable energy is more important than ending poverty or hunger. Sustainability priorities vary from one part to another, yet our banks are put in the position of reconciling the differences.

Not-for-profits accelerate and smoothen this process. Recently, for instance, BAFT published their Transaction Banking Sustainable Finance Product and Reporting Matrix designed to provide guidance on transaction banking sustainable finance products being offered today. The matrix summarises the types of principles, considerations and reporting that are applied when implementing a sustainable finance product while allowing a bank to chart its own course.

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If the last few months, years, and decades have taught us anything on the route to sustainability, it’s the multi-organisation collaboration that goes into inchoate progress. Whitepaper research on ESG can translate to sustainability standards; questionnaires can inform future leadership decisions. The journey towards sustainability will be tumultuous and unpredictable, but certainly not insurmountable.

The Basel Endgame: Implications for US Credit Insurance

Understanding the impact of Basel III on banks: learn about the global regulatory shift and increased capital requirements.

Via Trade Finance Global by Deepesh Patel

The Basel III proposals signify a global regulatory shift for banks, focusing on increased capital requirements and refined risk weight calculations.

In the US, this implementation is called the ‘Basel endgame,’ while the UK refers to it as Basel 3.1 and the EU calls it Finalised Basel III.

This term has drawn significant attention from US federal banking agencies under a ‘Notice of Proposed Rulemaking’ (NPR). 

The regulators have invited public comments, and the credit insurance industry has engaged actively to advocate for meaningful Risk-Weighted Assets (RWA) relief.

Trade Finance Global (TFG) spoke to industry leaders Sian Aspinall, Marilyn Blattner-Hoyle, Tod Burwell, Neal Harm, Scott Ettien, Tomasch Kubiak, Azi Larsen, Harpreet Mann, Jean Maurice-Elkouby, Hernan Mayol, Marcus Miller, Richard Wulff, looking at the implications of Basel III implementation in the US, and what this means for the trade finance and credit insurance sector.

The history context of Basel regulations

The Basel Committee on Banking Supervision established Basel regulations in response to financial turmoil in the late 1970s.

Basel I (1988) focused on credit risk, Basel II (2004) included operational and market risks, and Basel III (post-2008 crisis) aimed to strengthen bank capital requirements and improve risk management.

The 2008 financial crisis revealed significant shortcomings in Basel II, leading to Basel III, which introduced more stringent capital requirements, new risk weight calculations, and a revised leverage ratio framework.

Basel III’s nuanced implementation

Each market tailors the Basel III implementation to its specific regulatory environment. 

The US calls it the ‘Basel endgame,’ the UK refers to it as Basel 3.1, and the EU calls it Finalised Basel III. 

Implementation has been pushed back to 1 January 2025 for the EU, and 1 July 2025 for the UK and US. Canada and Australia have already adopted Basel III.

The Basel endgame focuses on increasing capital against credit, market, and operational risks, significantly impacting lending costs and availability.

While the Standardised approach does not allow modelling, Advanced Internal Ratings-Based (A-IRB) banks previously modelled probabilities and loss given defaults (LGDs). 

Basel III removes this flexibility by setting input floors (LGDs at 40% for corporates and 45% for financial institutions) and an output floor (capital requirements cannot be less than 72.5% of the Standardised equivalent).

Basel III – The current US vs EU regulatory comparisons (like for like)

AspectUS regulations (Basel endgame)EU regulations (Basel III)
Capital RequirementsHigher, strict leverage ratiosMore flexible, lower capital charges
Risk Weight CalculationsStringent, detailed standardised approachMore flexible, less stringent
Credit Conversion Factors50% for performance guarantees, higher20% for performance guarantees, lower
Recognition of Credit InsuranceLimited recognition, non-favourable treatmentRecognised as a risk mitigation tool
Leverage RatioNon-risk-based, acts as a backstopFlexible, not binding

Key regulatory changes and what this means for the US

The Basel III endgame increases capital requirements against credit, market, and operational risks in the US. 

It introduces a dual structure for the calculation of Risk-Weighted Assets (RWAs) for banking organisations with total assets of $100 billion or more, including the legacy standardised approach and a new expanded risk-based approach.

Unlike the EU and UK, the US approach to recognising credit insurance for credit risk mitigation has led to varying interpretations and oversight. 

Credit insurance can meet the operational requirements set out in Regulation Q for eligible guarantees. 

However, the vagueness of Regulation Q has resulted in different interpretations by banks and insurers, leading to varied practices in the market. 

This ambiguity has been a focal point in advocacy efforts, emphasising the need for clearer policy guidelines to ensure credit insurance is appropriately recognised and utilised as a risk mitigation tool.

Industry reaction

Industry reactions are varied.

US banks argue that increased capital requirements are impacting their competitiveness compared to EU banks, as it costs them more, which is not the intent of Basel.

Insurers see this as an opportunity to provide greater support to US banks, similar to what they offer in the UK and EU, helping to diversify carriers’ portfolios.

There is currently a lack of clear recognition of credit insurance for credit risk mitigation in the US, partly because most insurance companies providing credit insurance do not qualify as eligible guarantors.

This could present an opportunity for US regulators to level the playing field by recognising credit insurance, potentially encouraging its greater use as a risk mitigation tool. 

Advocacy efforts have highlighted how credit insurance works, the transfer of risk from banks to insurers, and the benefits of spreading risk across insurers and reinsurers.

This diversification of risk is a key advantage, providing a more stable and resilient financial system.

Many have associations advocated US regulators through associations like BAFT (Bankers Association for Finance and Trade), the International Trade & Forfaiting Association (ITFA), International Association of Credit Portfolio Managers (IACPM), and Reinsurance Association of America (RAA).

Marsh McLennan companies (MMC), including Marsh, Oliver Wyman, and Guy Carpenter, have also independently advocated for regulatory changes.

They believe credit insurance should qualify as an eligible guarantee and insurance companies as eligible guarantors. MMC is seeking clarifications that would allow insurance companies without debt securities to qualify based on their parent companies’ status. 

Additionally, they request confirmation that credit insurance policies be classified as corporate exposures with a 65% risk weight, instead of the current 100%.

BAFT (Bankers Association for Finance and Trade) has raised concerns about increased capital requirements driving up the cost of trade finance and reducing its availability. 

They argue that the proposed 50% credit conversion factor for performance guarantees and standby letters of credit overestimates the risk compared to the EU’s 20%, disadvantaging US banks.

The International Chamber of Commerce (ICC) has also advocated for the 20% CCF in the EU, supported by data from the ICC-GCD 2022 study, which showed even lower CCF requirements for performance guarantees.

The proposed guidelines under the Basel III endgame suggest a 50% Credit Conversion Factor (CCF) for performance guarantees and standby letters of credit (SBLCs), while industry associations are advocating for a reduction to 20%, aligning with EU standards. 

The guidelines also propose a lower risk weight of 20% for trade-related exposures with maturities of three months or less, compared to recommendations in other jurisdictions for tenors of six months or less. 

Associations like ITFA and IACPM are advocating for insurance companies to be treated as banks, potentially attracting lower risk weights for self-liquidating trade finance instruments. 

Richard Wulff, Executive Director of ICISA said, “At a time of economic difficulty, unlocking bank financing to the real economy is an important policy question governments must address. Recognising the protection that highly-capitalised and well-regulated insurers deliver to banks for precisely this purpose could be an easy win, benefiting businesses around the world in the long run.”

Marilyn Blattner-Hoyle, Global Head of Trade Finance, Trade Credit & Working Capital Solutions at Swiss Re Corporate Solutions, and Vice Chair of the ICC Banking Commission, said, “US regulators have a win-win opportunity here to further the Basel financial stability aims with a proven ecosystem – the insurance and bank partnership in the credit space. This ecosystem has the potential to create trade and help companies. We are convinced that the insurance industry will continue to be a safe and diversifying risk partner.”

They argue that the rules fail to acknowledge the valuable protection credit insurance provides to banks in reducing and diversifying their credit risk. The silence on this subject in the Basel standards is in part due to this relationship between banks and insurers developing as market practice in the period since the standards first emerged.

In the EU and UK regulators are also examining the use of credit insurance in this way and assessing how best to incorporate eligibility of this kind of protection in the versions of the Basel standards. This would include both the criteria for utilising credit insurance in this way, as well as key metrics such as the loss-given default to apply to an insurance policy used in this way. 

Assuming the EU and UK adopt an approach that enables banks to continue to benefit from credit insurance post-Basel implementation, the US could miss out by not adopting a similar approach. 

In fact, as the product is not as well established on that side of the Atlantic, there is huge potential for banks to begin using credit insurance and other unfunded credit risk transfer solutions to boost bank financing by giving proper recognition in the regulation.

Credit insurance as a risk mitigation tool

The ITFA-IACPM whitepaper provides a comprehensive analysis of credit insurance as a risk mitigation tool. 

Credit insurance protects policyholders from non-payment or delayed payment by debtors, due to individual financial issues or external events like political incidents, catastrophes, or macroeconomic problems.

The credit insurance market provides various credit risk transfer products tailored to different asset classes, all meeting regulatory eligibility criteria.

Key products include Non-Payment Insurance (NPI) for lending books, Trade Credit Insurance (TCI) for receivables and supply chain finance, and Surety Master Risk Participation Agreements (MRPAs) for unfunded guarantee business.

Historically, credit insurance was not explicitly recognised as a credit risk mitigant in Basel regulations. 

However, Article 506, introduced in October 2022, marks a breakthrough by recognising it as a distinct risk mitigant in the EU. 

The UK had already taken similar steps with a policy statement in 2018, explicitly recognising the role of credit insurance.

The private credit insurance market has grown significantly over the past 20 years, with around 60 insurers holding investment-grade ratings. 

Banks use credit insurance as a portfolio management tool, with over a hundred billion dollars of coverage globally. 

A 2020 survey by ITFA and IACPM found that $135 billion of credit insurance coverage facilitated $346 billion in loans to the real economy.

For example, the white paper notes that credit insurance can significantly reduce banks’ risk exposure, allowing them to lend more confidently and at lower rates. 

This is particularly important in sectors with higher default risks, where traditional lending might be prohibitively expensive.

The paper includes data demonstrating the reliability of credit insurance policies. 

Between 2007 and 2020, 97.73% of the value of all claims was paid in full, showing the robustness of these policies even during financial crises.

One white paper anecdote illustrates these regulatory differences’ practical impact. 

A major US bank, unable to leverage credit insurance due to regulatory restrictions, faced higher capital charges and reduced lending capacity. 

In contrast, a European competitor, benefiting from more flexible regulations, managed to secure a significant trade finance deal by using credit insurance to mitigate risk and lower costs.

In a letter to the three US federal banking agencies on 16 January 2024, Hernan Mayol, Board Member, ITFA, and Som-lok Leung, Executive Director, IACPM said, “The proposed implementation of the Basel Accords should recognise the suitability of credit insurance as an eligible risk mitigant under the capital rules. This will not only advance the goals of the Basel Accords, but also place US banks on equal footing with non-US banks.”

Comparative analysis: US vs Non-US banks

The regulatory differences between US and non-US banks under Basel III create competitive dynamics. 

The Collins Amendment limits US banks’ ability to gain capital relief compared to non-US banks. EU banks benefit from more flexible risk-weighting rules and leverage ratios. 

The Targeted Review of Internal Models (TRIM) in the EU adds capital add-ons for European banks, mitigating the Basel III endgame’s impact. 

In the US, the Federal Reserve’s assessments and stress tests serve as equivalents, but without similar add-ons, US banks face stricter requirements.

Differences in regulatory frameworks between the US and EU may introduce opportunities for regulatory arbitrage, benefiting banks that navigate these discrepancies.

The Basel III endgame presents an opportunity for the US trade finance and credit insurance sector. 

Advocacy efforts have focused on education around how credit insurance benefits real economic growth and trade finance. 

All going well, the transfer of such risk from banks to insurers and reinsurers equates to $250 billion, according to the IACPM and ITFA, potentially occurring within the first three years. 

This high-caliber, low-loss-level business could enhance the stability of insurers’ portfolios. 

However, addressing issues such as the nuclear exclusion clause, which typically excludes coverage for losses due to nuclear incidents, remains a challenge. 

While some flexibility has been achieved, insurers’ current capacity to fully waive this clause is limited, potentially hindering the full implementation of RWA relief.