Policy News

BAFT, Trade Finance Groups Launch Report on Impact of LIBOR Transition

New report provides insight on the impact of LIBOR transition for banks and corporations in the trade finance industry.

WASHINGTON — BAFT, the leading global financial services association for international transaction banking, in collaboration with TXF Intelligence and Baker McKenzie today announced the publication of No More LIBOR: What Next for Trade Finance? This report explores the impending impact the cessation of LIBOR will have on trade finance. Using a mixed methodology that combined quantitative survey responses with detailed qualitative insights from banks and corporations between February and May 2021, this report sheds light on the industry’s transition priorities in the months leading up to LIBOR’s cessation.

“The goal of this research is to present the latest market trends surrounding the impending cessation of LIBOR across trade finance,” said Tom Parkman, head of research, TXF Intelligence. “The data presented provides an insight into prevailing sentiments across parts the banking and corporate world this critically important issue – research which to date, does not exist in the trade finance industry.”

The transition away from LIBOR will have a deep impact across the suite of trade finance products. In 2019, global trade flows totaled $18.1 trillion, with an estimated $9.77 trillion of that sum comprised of bank intermediated trade. Corporations surveyed in this research have reportedly made very little progress to successfully transition all of their LIBOR-linked exposures to a suitable alternative rate. Banks surveyed continue to stress the importance of transitioning to term rates for all currencies, but especially for U.S. Dollar. Banks cited the uncertainty and lack of clarity around the availability of term rates across currencies as a roadblock to effectively communicating a transition plan with corporate clients. Regulatory efforts are being made in the U.S. to assist the availability of the Term SOFR rate and more progress is expected soon. For example, on July 21, the Alternative Reference Rates Committee recommended conventions and use cases for employing the forward-looking Secured Overnight Financing Rate (SOFR) term rates that are expected to be formally recommended by the ARRC in the coming days.

“While LIBOR transition has often been regarded as a ’bank problem,’ banks tread a fine line between educating borrowers who may be less familiar with the issues around LIBOR transition and providing advice,” said Luka Lightfoot, partner, banking and finance, Baker McKenzie. “It is important that corporates and banks engage with each other to come to mutually acceptable solutions to the LIBOR transition challenge.”

“Banks should continue to track currency-specific transition deadlines, intensify internal system and process preparations, and enhance and tailor communication with corporate clients,” said Diana Rodriguez, vice president, international policy, BAFT. “Taken together, these steps will help to ease some of the uncertainty and pave a more solid path toward transition.”

To read No More LIBOR What Next for Trade Finance?, click here.

To read BAFT’s other resources on navigating the transition, click here.

BAFT Media Contact:
Blair Bernstein
Director, Public Relations
[email protected]
+ 1 (202) 663-5468

Trade Digitization in A Post-Pandemic World

New BAFT whitepaper analyzes the state of trade digitization at the end of 2020, the progress made during the COVID-19 pandemic and highlights necessary actions to ensure continued advancement

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, in collaboration with the International Chamber of Commerce (ICC) and the International Trade and Forfaiting Association (ITFA) today announced the publication of a new whitepaper, Progress on Trade Digitization 2021. The whitepaper analyzes the state of trade digitization at the end of 2020, highlights progress made during the COVID-19 pandemic and proposes additional changes to ensure digitization’s continued and sustainable advancement.

According to a 2020 ICC Annual Survey, 54% of respondents revealed they introduced new digital solutions to address difficulties posed by COVID-19. These digital initiatives took various forms, including mobile network providers reducing fees, governments raising contactless limits to reduce in-person cash transactions and increased daily and monthly limits for users.

“While these digital developments in the wake of COVID-19 were incredibly helpful, our ultimate goal is to make positive changes that are sustainable long-term,” said Stacey Facter, senior vice president, trade products, BAFT. “To do that requires a legal environment that allows for digital documents to scale, as well as a global adoption of the standards in place today and continued support for those still under development. These are critical factors in maintaining the forward momentum of digitization.”

“The arguments in favor of digitization have been accepted by the majority of the world’s biggest trading nations but implementation still remains a work in progress,” said Sean Edwards, chairman, ITFA. “Fortunately, we possess the tools and resources to make this happen and the pace of change can be very quick with the right support.”

The whitepaper highlights six countries as case studies in how governments can implement reforms that harmonize their domestic legal frameworks with UNCITRAL’S Model Law on Electronic Transferable Records.

It also discusses the need for cross-industry, cross-technology platform-based standards to improve the effectiveness and efficiency of digital trade. The paper offers examples of standards available today and encourages stakeholders to consider how they can leverage them. For those interested in going a step further, the paper suggests participating in the creation of global standards through the DSI.

To read Progress on Trade Digitization 2021, click here.

BAFT Media Contact:
Blair Bernstein
Director, Public Relations
[email protected]
+ 1 (202) 663-5468

BAFT Releases FAQ on LIBOR Transition, Impact to Trade Finance

New report provides guidance and information on LIBOR transition for trade finance industry

WASHINGTON — BAFT, the leading global financial services association for international transaction banking, today announced the publication of the first edition of LIBOR Transition: Impact on Trade Finance – Frequently Asked Questions Guide to inform and respond to frequently asked questions related to LIBOR transition for U.S. Dollar and UK Pound Sterling.

Trade is essential to GDP growth and supports commercial flows and supply chain sustainability globally. In 2019, global trade flows totaled $18.1 trillion, with an estimated $9.77 trillion of that sum comprised of bank intermediated trade. USD LIBOR is the most widely used benchmark across the trade finance industry globally. As the market prepares to transition away from LIBOR to Risk Free Rates (RFRs) by the end of 2021, BAFT member institutions have been working steadily to prepare for the change.

“This frequently asked questions guide provides timely information for trade finance practitioners who are preparing for the transition away from LIBOR,” said Diana Rodriguez, vice president, international policy at BAFT. “The trade finance business has long stressed the imperative for a forward-looking term rate to ensure the uninterrupted provision of financing to support cross border trade. We were pleased to see the development of Term SONIA in the UK which forged a clear path for the industry to transition. In the U.S., we are awaiting and closely tracking the ARRC’s plans to formally endorse a SOFR Term Rate and are evaluating the viability of other term rates solutions for the U.S. Dollar.”

The BAFT guide is the culmination of several months of analysis by the BAFT IBOR Transition Working Group, as well as active engagement with vendors providing term rate solutions for the U.S. Dollar. Trade finance practitioners are encouraged to work internally with LIBOR transition teams to review documentation carefully to determine what elements of the portfolio and services reference LIBOR or other IBORs that will cease and what fallbacks would apply when the rate becomes unavailable. This resource will be updated regularly as new official sector guidance emerges and to reflect emerging BAFT working group best practices. Future iterations of this guide will consider transition priorities for other important currencies for the trade finance business.

To read the LIBOR Transition: Impact on Trade Finance – Frequently Asked Questions Guide, click here.

Read the full guide here.

BAFT Media Contact:
Blair Bernstein
Director, Public Relations
[email protected]
+ 1 (202) 663-5468

BAFT Releases Whitepaper on Cross-Border Faster Payments

BAFT announces publication of whitepaper on conditions necessary for a cross-border faster payments ecosystem.

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, today announced the publication of its whitepaper, Enabling Faster Payments Across Borders.

The paper discusses the cost-benefit analysis involved in moving forward with cross-border faster payments including user expectations and industry readiness for adoption. It also provides recommendations and key considerations to enable the development of a cross-border faster payments ecosystem.

“Baseline standards and processes must be established to address the open issues that make real progress on cross-border faster payments difficult to attain,” said Samantha Pelosi, senior vice president for payments and innovation, BAFT and co-chair of the BAFT Cross-Border Faster Payments Working Group, which produced the paper. “These issues fall into three broad categories of interoperability, business processes and compliance, and are similar to the frictions that the Financial Stability Board (FSB) and Committee on Payments and Market Infrastructures (CPMI) have identified as inherent to all cross-border payments.”

The publication of this paper is the first step of BAFT’s larger strategy to facilitate global faster payments by encouraging the designers of national and regional faster payments systems to include the capability at the outset. The paper and ongoing research by BAFT’s Global Payments Industry Council on best practices for the implementation of a faster payments system will serve as reference points for the association’s discussions with regulators, central banks, market infrastructures and system operators.

“To benefit international trade and economic growth, we need to enhance global connectivity by making payment systems in different geographies interoperable,” said Vinayak Prabhu, vice president, global transaction banking, Mashreq Bank and co-chair of the Working Group. “The paper provides recommendations along with potential models for building a seamless, transparent, and faster cross-border payments ecosystem.”

BAFT encourages entities that are currently building or upgrading their faster payments systems to incorporate the functionality and operating rules necessary for processing cross-border payments when the market is ready.

The development of the whitepaper began in the fall of 2019, when BAFT assembled a working group of 24 members based in North America, Europe, MENA, and APAC. A drafting sub-group of BNY Mellon, HSBC, iSoftware4Banks, Mashreq Bank and TD Bank wove the information into an important, future-looking resource.

To read Enabling Faster Payments Across Borders, visit BAFT’s Library of Documents under the BAFT Guidance on Industry Practices section or click here.

About BAFT
BAFT is the leading international financial services association whose membership includes large global and regional banks, service providers, and fintech companies headquartered around the world. BAFT provides advocacy, thought leadership, education, and a global forum for its members in transaction banking, including international trade finance and payments. For nearly a century, BAFT has expanded markets, shaped policy, developed business solutions, and preserved the safety and soundness of the global financial system.

BAFT Media Contact:
Blair Bernstein
[email protected]
+ 1 (202) 663-5468

GSCFF Announces Update to its Standard Definitions to Include Description of Corporate Payment Undertaking

On January 28, The Global Supply Chain Finance Forum (GSCFF) announced plans to update its Standard Definitions for Techniques of Supply Chain Finance to provide further clarity on the distinctions between the individual techniques.

The Global Supply Chain Finance Forum (GSCFF) – comprising BAFT (Bankers Association for Finance and Trade ), FCI (previously known as Factors Chain International), the International Chamber of Commerce (ICC), the International Trade & Forfaiting Association (ITFA) and the Euro Banking Association (EBA) – today announced plans to update its Standard Definitions for Techniques of Supply Chain Finance (Standard Definitions) to provide further clarity on the distinctions between the individual techniques.

Alongside the existing Receivables Purchase and retitled Loan sub-categories, a newly created Advanced Payable sub-category now includes three techniques: Corporate Payment Undertaking (CPU), Dynamic Discounting (DD) and Bank Payment Undertaking (BPU).

This update highlights and confirms the quality of the original content – first published four years ago – and the need to be agile in a dynamic field such as supply chain finance. Thus, it is intended to reflect an up-to-date view of current market practices within supply chain finance, in particular by establishing greater clarity between the Payables Finance Technique under the Receivables Purchase category and the CPU technique.

CPU is a buyer-led program within which sellers in the buyer’s supply chain can, at their option, access liquidity by requesting a discounted early payment. However, unlike a Payables Finance scenario, the finance provider does not purchase the underlying receivable from the seller, but rather, fully relies on the buyer’s irrevocable payment undertaking.

Christian Hausherr, Chair of the GSCFF, and European Product Head of Payables Finance, Trade Finance & Supply Chain Finance at Deutsche Bank, says: “At the time of publication, the Standard Definitions were deemed to be complete and widespread acceptance of the terminology confirms their benefit for the wider industry. Today, the GSCFF aims to bring further clarity to the techniques, with new description of CPU, DD and BPU. Adapting to current business practices, these updates will continue to encourage greater adoption of the Standard Definitions by market participants.”

The first description document on CPU has also been released today, with subsequent documents on DD and BPU expected over the coming months. Each description document will provide an overview of the technique’s definition, involved parties, distinctive features and variations, relevant risks and benefits, among other technicalities. Once the series has been published, a final updated version of the master Standard Definitions document will be made publicly available.

To access the description document on corporate payment undertaking, visit our Library of Documents under the Industry Definitions and Guidelines section or click here.

About the Global Supply Chain Finance Forum:
The Global Supply Chain Finance Forum was established in 2014 to develop, publish and champion a set of commonly agreed standard market definitions for Supply Chain Finance (SCF). Comprised of trade bodies BAFT (Bankers Association for Finance and Trade), FCI (previously known as Factors Chain International), the International Chamber of Commerce (ICC), the International Trade and Forfaiting Association (ITFA) and the Euro Banking Association (EBA), the industry consortium leverages its collective footprint to aid the target audience of SCF in gaining clarity and consistency on the various terms and techniques used. The main objective of the GSCFF is to support the sustainable growth of supply chain finance by establishing consistency and a standardized understanding of SCF across the industry. Subsequently, the GSCFF strives towards acknowledgement of its definitions and their benefits by its target audience, especially on the regulatory side. The GSCFF monitors and reacts to major market developments in all relevant matters for SCF. It is open to financial institutions, non-FI finance providers, accounting firms, investors, rating agencies, regulators and corporates who have a stake in SCF.

BAFT Releases Best Practices for New Financial Asset on Distributed Ledger Technology

BAFT announces the publication of both the Business Best Practices and Technical Best Practices, Version 1.1, for the Distributed Ledger Payment Commitment (DLPC).

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, today announced the publication of both the Business Best Practices and Technical Best Practices, Version 1.1, for the Distributed Ledger Payment Commitment (DLPC). The DLPC is a digital asset and global standard for a payment commitment that can be used on any blockchain network and can operate across networks. First released in August 2020, this latest version of the DLPC Best Practices incorporates industry comments and experience from implementation in live transactions.

Investigating the use of distributed ledger technology to expedite the digitization of trade finance, the BAFT Innovation Council established the DLPC working group in 2016. It was tasked with producing standardized rules for the transformation of a payment commitment, the common core of all negotiable trade instruments, into a digital asset to be used in any trade finance solution sitting on any distributed ledger technology platform. The working group introduced the DLPC Best Practices for trial use in April 2019.

Since then, the DLPC has been implemented in live transactions as a digital asset backed by a traditional trade instrument, such as a guarantee, as a means for enterprises to finance international trade transactions and facilitate the ultimate resulting payments. With the recent guidance from the U.S. Office of the Comptroller of the Currency endorsing bank participation on blockchains and use of stablecoins for payments, the DLPC is in position to make a significant contribution to the new rails of transaction banking.

“In just a little over a year, the DLPC has grown from being a global standard for traditional payment commitments to a new financial asset and payment instrument in its own right,” said Rebecca Liao, co-founder and COO of Skuchain and co-chair of the DLPC working group. “The trade finance community was hungry for an innovation with a solid legal framework that would allow transactions to be digitized, de-risked, negotiable, and interoperable across platforms to promote greater liquidity and market efficiency.”

“The DLPC breaks new ground for financial services firms seeking to leverage the unique characteristics of distributed ledger technology,” said Samantha Pelosi, senior vice president for payments and innovation, BAFT. “Use of the DLPC facilitates the interoperability of disparate blockchain platforms and creates what is currently the only digital negotiable instrument with legal backing. These best practices provide for sound validity under Delaware law, and BAFT continues to advocate for the amendment of laws to grant similar legal status to digital negotiable instruments used in cross-border transactions.”

The DLPC working group consists of 12 representatives from BAFT and the following organizations: Arnold & Porter Kaye Scholer, CGI, Citi, GTBInsights LLC, Morgan, Lewis & Bockius, Queen Mary University of London, R3, Red Chalk Group, Skuchain, Standard Chartered, Surecomp, US Bank, Wells Fargo, and Young Conaway Stargatt & Taylor.

To read the DLPC Best Practices, visit our Library of Documents under the Industry Definitions and Guidelines section.

BAFT Media Contact:
Blair Bernstein
[email protected]
+ 1 (202) 663-5468

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