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Global Trade Finance: Refining the Regulatory Balance

Latest edition of ICC report reaffirms that trade finance is a low-risk asset class, encouraging greater collaboration and dialogue among industry stakeholders.

By Alexander R. Malaket | Updated on August 02, 2016
Eight years after the beginning of the financial crisis, regulators and financiers are still searching for the optimal balance between encouraging global growth and implementing regulations on trade finance instruments that are adequate, equitable, and risk-aligned.

This is a crucial discussion, especially for developing nations and the companies looking to do business there. Trade finance assists buyers and sellers by filling in the trade cycle funding gap and removing the payment risk and supply risk. It is therefore a key factor in emerging-market development, as governments and regulators around the world recognize.

The International Chamber of Commerce’s (ICC’s) Trade Register report presents a global view of the credit risk profiles of trade and export finance transactions, focusing on credit-related default and loss experience. This encompasses short-term products, which typically have a maturity of less than one year, such as issued import letters of credit (L/Cs), confirmed export L/Cs, import and export loans, and performance guarantees and standby L/Cs. The scope of medium- to long-term trade finance products is limited to products where an OECD Export Credit Agency (ECA) has provided a state-backed guarantee or insurance to the trade finance bank.

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