BAFT Releases Updated Correspondent Banking Relationship Guide, Respondent’s Playbook 2.0

October 16, 2023 by [email protected]

BAFT released today an updated version of its Respondent’s Playbook for Obtaining and Maintaining a Correspondent Banking Relationship.

The BAFT Respondent’s Playbook 2.0: A Correspondent Banking Relationship Guide serves as a roadmap for respondent banks on international anti-money laundering and combating the financing of terrorism (AML/CFT) standards. This updated correspondent banking relationship guide provides actions that may improve the ability of respondent banks to obtain and maintain a correspondent banking relationship.

This is an update to the 2019 guidance document for users of correspondent banking services. The Respondent’s Playbook 2.0 newly outlines the decision-making process of correspondents establishing new and reviewing existing relationships and the measures that respondents may take to increase the likelihood of a favorable outcome.

The 2023 version incorporates current regulatory changes in the marketplace and includes a new section on the ISO 20022 migration in addition to sections covering:

An Introduction on the Current State of Correspondent Banking
Establishing a New Correspondent Relationship
Maintaining an Existing Correspondent Relationship
Options for Respondent Banks Unable to Obtain or Maintain a Relationship
Special Considerations for Money Services Businesses and Fintechs
Frequently Asked Questions from Respondent Banks

BAFT Members can download the Respondent’s Playbook 2.0: A Correspondent Banking Relationship Guide for free. Non-members can purchase the updated guide through the BAFT Store.

September 14, 2023 by [email protected]

In an era marked by technological advancement and rapid digitization, the landscape of financial transactions has undergone a transformative shift. Traditional modes of payment, such as checks and physical currency, have given way to the convenience and efficiency of digital payments.

By Deepa Sinha, Vice President of Payments and Financial Crime, BAFT via Trade Finance Global

Automated Clearing House (ACH), wire transfers, and credit cards have become the cornerstones of modern commerce, enabling seamless transactions across borders and time zones. However, as these digital payment methods flourish, industry stakeholders are increasingly cognizant of the inherent risks that come hand-in-hand with this progress.

The Digital Advantage: Efficiency and Accessibility

Digital payments have revolutionized the way businesses and consumers conduct transactions, offering unparalleled convenience and speed. ACH transfers allow for the automatic movement of funds between accounts, streamlining processes like payroll and bill payments.

Wire transfers expedite international transactions, eliminating the time-consuming intermediaries of traditional cross-border commerce. Credit cards, with their widespread acceptance and instant payment capabilities, have become the go-to choice for in-store and online purchases.

Beyond the convenience, these digital methods have democratised financial access. Small businesses can now compete on a global scale, reaching customers beyond their local markets. Consumers benefit from the flexibility to manage their finances, make purchases, and pay bills with a few clicks. However, these benefits come intertwined with potential risks that necessitate careful consideration.

Navigating the Risks: Security and Fraud

The rise of digital payments has also given rise to an array of cybersecurity challenges. With transactions occurring in the virtual realm, the potential for cyberattacks, data breaches, and fraud has grown exponentially.

While security breaches predominately occur with merchants connected to the network rather than the payment systems themselves, malicious actors are constantly seeking vulnerabilities in payment systems to gain unauthorized access to sensitive information, leading to financial loss and reputational damage for both businesses and consumers.

ACH transactions, while efficient, can be susceptible to account takeovers and unauthorized withdrawals. Wire transfers, particularly in international contexts, may be subject to fraudulent instructions that divert funds to the wrong destinations.

Credit card fraud remains a persistent concern, with cardholder information being compromised via retailer breaches. As these risks evolve, industry stakeholders must adopt comprehensive security measures to safeguard digital transactions.

The Role of Regulations and Compliance

Recognizing the critical need to address these challenges, regulatory bodies have implemented measures to protect digital payment ecosystems. The Payment Card Industry Data Security Standard (PCI DSS) provides robust requirements for safeguarding credit and debit card data, requiring encryption, regular security assessments, and compliance reporting.

A lack of PCI compliance by non-bank entities (major retailers, most prominently) has been the proximate cause of major data breaches, demonstrating that a secure ecosystem relies on compliance by all data handlers.

The EMVCo (Europay, Mastercard, and Visa Consortium)’s global card and mobile payment security standards are a major step forward in securing new payment types and have reduced payments fraud worldwide. The new EMV Secure Remote Commerce (SRC) standard is increasingly found online, where it’s called “Click to Pay” and leverages a combination of methods to secure card-not-present transactions.

The Bank Secrecy Act and Anti-Money Laundering regulations impose robust due diligence practices on financial institutions, mitigating the potential misuse of digital payment platforms for illicit activities.

Yet, achieving compliance is not a one-size-fits-all solution. Industry participants must tailor their security protocols to their specific operational landscapes. Robust authentication mechanisms, multi-factor identification, adoption of the latest standards from bodies like the PCI Council and EMVCo, and real-time transaction monitoring are among the strategies that can fortify digital payment platforms against threats.

Uneven regulations between banks and non-banking financial institutions across the global payments industry are a problem that needs to be addressed. The BAFT Global Payments Industry Council, comprised of senior bankers in global payments, is publishing a collaborative white paper titled “Uneven Regulations in Payments”, which is a model code for how to remedy the uneven payments landscape.

It addresses the uneven regulations’ four themes and their implications:

Regulatory Oversight,
Extension to Sponsorship – Indirect Scheme Participation,
Consistency of KYC/CDD Requirements,
Permissibility of Cross-Border Activity.

The overarching principle should be to avoid ambiguity or “silent” rules, which will then lead to different interpretations and difficult enforcement. The paper will be published later this year.

Collaboration and Innovation as Defenders

As the digital payment landscape continues to evolve, collaboration and innovation emerge as vital strategies for managing risks. Industry stakeholders must come together to share insights, best practices, and emerging threat intelligence.

Financial institutions, retailers, fintech startups, cybersecurity experts, and regulatory bodies must forge partnerships to create a united front against cyber threats.

Furthermore, embracing technological advancements such as artificial intelligence (AI) and machine learning can empower payment platforms to detect anomalies and patterns that indicate fraudulent activities. Real-time fraud detection algorithms can provide an additional layer of security, swiftly identifying and blocking suspicious transactions.

No Pain No Gain

The ongoing digital payment revolution offers a host of benefits, enabling businesses and consumers to transact with unprecedented ease. However, these advantages are accompanied by inherent risks that require strategic vigilance and action.

Security breaches, fraud, and compliance challenges underscore the need for comprehensive risk management strategies. By implementing robust security measures, adhering to regulations, fostering collaboration, and leveraging innovative technologies, the industry can navigate the intricate landscape of digital payments and usher in an era of secure and seamless transactions.

September 6, 2023 by [email protected]

WASHINGTON — BAFT, the leading global financial services association for international transaction banking, today announced the launch of its new Certificate in Advanced Trade Finance (CATF) which will offer an in-depth overview of the trade finance business, supply chain finance, cross-border risk, and liquidity solutions. This is a level II certificate, tailored to those with more than three years of trade finance experience.

This on-demand course, available through BAFT’s Learning Management System, will cover 11 modules that focus on a range of advanced trade finance topics, including:

Managing and mitigating emerging market and other cross-border risks;
Understanding the links between supply chain finance and procurement;
Understanding inventory finance;
Secondary markets, insurance and asset distribution in trade and supply chain finance;
Advanced financial crimes, compliance and fraud in supply chain finance;
Digital trade and trade financing;
Best practices in trade and supply chain finance operations;
ESG and sustainable trade finance;
Deep-tier supply chain finance and addressing the trade finance gap;
Nonbank providers of trade and supply chain finance; and
Trade finance and supply chain finance from the corporate and commercial practitioners’ point of view.

“BAFT is dedicated to promoting best practices in international transaction banking and serving as a trusted authority within the industry,” said Scott Stevenson, Senior Vice President of Trade for BAFT. “CATF reflects this commitment by offering a curriculum that is both relevant and up-to-date, exceptional in quality of content and delivery, and ensures participants are well prepared to navigate the complexities of the global trade landscape.”

The courses will be led by Craig Weeks, an independent banking consultant with more than 30 years of experience in trade finance, supply chain, and transacting banking operations, and Alexander Malaket, a consultant in international trade, trade financing, trade-related international development and sustainability/ESG.

The course will take between 12 to 15 hours of study to complete and participants must pass a final assessment to be certified.

Learn more about the new Certificate in Advanced Trade Finance and contact [email protected] with any inquiries.

August 8, 2023 by [email protected]

A Clearer Picture After the COVID-19 Pandemic?

BAFT and CGI conducted their third annual trade technology survey at the end of 2022. As banks and the global trade industry return to a more stable state with less direct challenges from the COVID-19 pandemic, CGI and BAFT requested input surrounding technology priorities and investments within financial institutions’ trade organizations.

What’s Impacting Trade Finance Today?

The past year saw the consolidation of Fintechs in the trade space, with banks taking a more focused and outcome-oriented approach to incorporating new technologies into their operations. This has been observed with the closures of Serai, We.Trade, and TradeLens, all blockchain consortia or networks which ceased operations in 2022. Based on the survey participants’ feedback, investments in innovation appear to compete for limited resources at trade banks, including environmental, social and governance (ESG) initiatives, digitization, compliance, supply chain finance (SCF) growth and automation.

Investing in Innovation – The Top Technology Investments Over the Next Five Years

Last year, API services and ESG solutions were the investments that stood out as the most impactful among survey respondents. However, this year’s survey indicates a continued focus on the foundational aspects of trade back-office and trade portal modernization, as well as intelligent process automation (machine learning, natural language processing, artificial intelligence) investments.

Back and front office modernization is crucial for maintaining efficiency on the back end and a positive user experience for customers on the front end. CGI helps clients utilize modernized technologies to drive efficiencies through automated workflows and imaging between the customer and the bank, streamlined portal usability and processing services that remove work from the corporate back office. In addition, these core components will enable end-to-end digitization by providing API capabilities to banks. These elements are fundamental, and with their presence, banks will be hampered from a future capability and product offering perspective.

IPA investments like machine learning and AI have the potential to improve the efficiency and accuracy of processes by automating manual work traditionally done by employees. Over time, this will result in decreased human intervention and errors and allow employees to focus more on value-add tasks.

Greatest Barriers to Innovation

This year’s survey indicated that resource limitations, competing internal priorities and budget were the most significant barriers to embracing innovation. The impact of these barriers has shifted since our 2021 survey, with resource limitation jumping to the top of the list.

Trade banks struggle to prioritize competing investments, including ESG initiatives, digitization, compliance, SCF growth and automation. This challenge isn’t unique to banks or the trade finance industry, as many sectors are being asked to do more with less within an uncertain economic climate. Because of the lack of resources, it’s no surprise that technology investment was a top challenge for banks. The concern with regulatory landscapes and compliance is also still ever-present. The trend towards digitization, heavily influenced by the pandemic, was thought to help combat regulatory challenges and reduce the impact. But will that same push toward modernization continue as we settle into our new normal?

Fintech Collaboration

A middling level of satisfaction with fintech engagement has continued in this year’s survey. The top types of fintech engagements were SCF platforms and digital document platforms.

The shift towards SCF began last year, with banks expecting only 50% of their revenue to come from traditional trade business. SCF platforms were the most demanded type of fintech engagement because of the digitization benefits they deliver.

SCF platforms offer a tangible and easy-to-understand solution for bankers, so it’s no surprise they are still growing in demand. They also deliver digitization benefits, including improved UX for clients.

Change in ESG Impact

ESG initiatives first emerged in last year’s survey, emphasizing investment in environmental sustainability. There was interest from both corporates and banks, although there were no formalized incentives for implementing initiatives.

While this year’s survey indicates that ESG is still growing, there has been little impact on the trade finance business. Since 2021, corporate clients’ interest in utilizing ESG products has decreased by 11.7%, and only 10.1% of participants are executing impactful ESG initiatives. At the same time, 23.2% have implemented ESG initiatives but aren’t seeing an impact on their trade business.

Insights You Can Act On

As we move to a new normal post-pandemic, it is interesting to see where the industry and clients are looking to invest in the future. CGI and BAFT conduct this survey annually to encourage connectivity to external fintech partners and provide valuable insights into the trade finance industry. We also use these insights to deliver better solutions to meet our client’s needs.

For more information on the topics discussed in this blog and insights into the trade finance industry, download the BAFT and CGI State of Trade Technology Survey – 2022 Results here.

July 31, 2023 by [email protected]

PNC Bank’s Daniel Pinho announced as new VP at Bankers Association for Finance and Trade overseeing business operations, education and training, and strategic leadership councils.

WASHINGTON – BAFT, an international financial services association, has named Daniel Pinho as its new Vice President of Operations and Business Management. Pinho will oversee the business operations of the association, support its North America and Regional Bank Councils, and education initiatives including the Future Leaders Program when he joins BAFT on July 31.

“Daniel has played an active role in the BAFT community for many years and we are delighted to have him join us as a part of the BAFT team,” said Tod Burwell, President & CEO of BAFT. “His industry knowledge and familiarity with our members, our business and our practices should allow him to seamlessly transition while ensuring we continue to exceed member expectations.”

Prior to joining BAFT, Pinho was Senior Vice president and Assistant Group Manager of Trade Finance at PNC, where he held a number of roles over the past 19 years. Prior to PNC, he worked at UPS Capital Business Credit. Pinho has been active on many BAFT councils and committees and was recognized as 2020 BAFT Ambassador of the Year. He served on the advisory committee of the Export-Import Bank of the U.S., the Secretary of PNC’s Latino Employee Business Resource Group, and as a member of the bank’s Talent Management Council.

Pinho has an MBA from the University of Connecticut, BBA from Mackenzie University (São Paulo), BSc Engineering from the Polytechnic School of University of São Paulo, and is fluent in Portuguese and Spanish.

About BAFT

BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth. BAFT engages on a wide range of topics affecting transaction banking, including trade finance, payments, and compliance.

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

June 29, 2023 by [email protected]

Advancements in technology have contributed to an acceleration in the trade finance industry’s digitization efforts, but the reality is that many processes are still done manually and with paper. When will we see critical change in digitizing trade finance?

Via Contour

Advancements in technology, from legal entity identifiers (LEI) to digital trade finance platforms, have contributed to an acceleration in the trade finance industry’s digitization efforts. The pandemic and subsequent lockdowns were a big push factor for many to jump on the digital bandwagon, but the reality is that many trade finance processes are still done manually and with paper.

When will we see critical change in digitizing trade finance? We define that moment as when all participants – banks and their clients, are part of a wider digital network.

“I think it is in this decade – five to seven years is reasonable,” commented Tod Burwell, President & CEO of BAFT (Bankers Association for Finance and Trade), in a recent Contour podcast.

Burwell noted that governments are starting to drive the push towards digitalization through incentives and penalties. He cited deep tier supply chain financing as an example of when policymakers can spur action and activity.

“The more we start to see real examples of success as a function of digitizing, the more it will increase the rate at which we see other organizations adopting it,” he said.

Driving Change in Standards and Interoperability

In June 2022, BAFT, which is the leading international transaction banking association, released a whitepaper “Digitizing Trade Finance: Now and the Future”. The report highlighted the inefficiencies of the global trade system, where roughly 30% of time is spent on processing documents. As a result, $150 billion is estimated to be lost annually to the manual activities of trade finance operations.

The whitepaper concluded that the two major obstacles standing in the way of more digital adoption are interoperability and standards or legal frameworks.

“Those are the two huge pieces that we’re trying to solve for as an industry,” said Burwell.

There are steps made in the right direction to drive change in these areas. Burwell gave the example of the Model Law on Electronic Transferable Records (MLETR), proposed by the United Nations Commission on International Trade Law (UNCITRAL) which has been adopted in seven to eight countries.

“There has been a huge push to try to drive change in the legal framework, in order to allow for data and digital documents to be legally acceptable and legally binding in the context of digital trade,” he added.

BAFT is helping its members, which include banks, technology companies and advisory firms, navigate the obstacles and opportunities that trade digitization presents. It created the Distributed Ledger Payment Commitment (DLPC) as a useful standard to address issues on interoperability. On the broader scale, Burwell added that this is where the ICC Digital Standards Initiative (DSI) comes in.

Solving for Interoperability Through Partnerships

Digital trade finance solutions like Contour are addressing the issue of interoperability by forging partnerships and integrating with other solutions providers.

“We work with bank bank-office systems that manage trade and risk, and we bring our transaction data into those systems,” said Carl Wegner, CEO of Contour.

The fintech’s recent tie-up with Finastra, a bank solutions provider, demonstrates interoperability at its best, as it integrates both solutions – removing friction and simplifying the process for bank operators and their clients.

“The banks’ staff do not need to log in to Contour and can manage their digital Letter of Credit workflows as part of their normal transaction process,” he described.

With the collective power of organizations trying to work towards digitalization, Burwell believes the industry will get there sooner than he personally thinks it would.

Sustaining the Future of Digital Trade

Contour has led the way for more efficient, streamlined and paperless trade finance. It is a platform that creates opportunities for everyone in the trade ecosystem.

This is where sustainability and digital trade solutions intersect. At its core, digitalization and sustainability are the two topics that BAFT is engaged in with their members and what Burwell consistently hears is “achieving sustainability is not possible without digitalisation”.

While Burwell observes that the primary purpose of an organization’s investment in technology is to improve efficiencies or reduce fraud, he fully believes that “sustainability is another fundamental reason why organizations are making that investment in technology”.

However, ESG priorities should not just focus on the environment but also about society and governance. Small and medium-sized enterprises (SMEs) are a big part of the “S” in ESG and a big part of closing the trade finance gap is ensuring that all technological solutions are within the reach of everyone.

“Often, the smaller banks, regional banks and emerging markets banks are best placed to serve that SME population, but they’re not the early adopters of this technology,” Burwell noted. “I think we’re in a place right now where we’re trying to meet those two.”

Wegner emphasized the need to have an SME model to allow them to participate as well.

“Everyone wins when you have more data to exchange and follow,” said Wegner.

The future of trade digitization is now, but this has to happen in a way that is inclusive. SMEs play a big role in many economies, especially in the emerging world. The World Bank estimates that they represent about 90% of businesses and more than 50% of employment worldwide. Improving SMEs’ access to finance is what will make a difference in narrowing the trade finance gap.

To listen to the full podcast featuring Tod Burwell, click the link here.

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