The 2021 Global Trade Reviews (GTR) Conference on global trade and finance took place over June 29-30, offering a plethora of impressive panelists and speakers to provide invaluable insights in market environments. It was hypothesised how fortunate it would be if the UK Government could use the GTR Reviews for policy consultancy, and it’s hard not to agree; the resolutions and descriptions offered across the spectrum of professionals revealed an impressive degree of consensus that politicians are yet to offer. Nevertheless, the focus of the discussions spanned a few important but salient topics. Environmental Social Governance (ESG), Supply Chain Finance (SCF), UK Export Finance (UKEF), Trade Digitisation, and Political Risk were all at the forefront of consideration. This piece comprises the first of three upcoming articles discussing the major themes and key insights from the GTR 2021 Conference; for now, I will summarise the understandings and lasting impressions of the summit.
Supply Chain Resilience and Kowing Your Customer
The degree of mutual consensus between the panellists while discussing complex topics deserves merit; from the first talk through until the last, listeners were relieved from the lag of mundane re-definitions and misunderstandings. Straight away, the focus was on how to manage banks’ expectations and to help SMEs make the most of supply chains at a time of perturbed market behaviour. Physical supply chains have forced the market disruptions into the direct consciousness of traders, with CEO of Demica Maurice Benisty stressing the need to be hyperaware of SFC and the need for upcoming economic recalibration. Benisty stated that while many trade disputes remain currently unresolved, there will be times of opportunity to reengage with the financial sector. Nevertheless, recent activity of multinational private equity acquisitions as well as implosions such as Greensill Capital will entail stricter due diligence programs across the board. However, this should be appreciated; the practices will precipitate a safer financial environment, mitigating risk throughout supply chains as we emerge from the COVID-19 pandemic.
Across the pond, we have seen the United States adopt supply chain finance operations that have a broader selection of assets that can be used for security; Alexander Mutter, Head of EMEA Sales at Taulia, agreed that the UK could do with more liberal and accessible financial services at the moment, although we need to be “risk intelligent” in where we distribute our interventions (to borrow CEO of OCI Group Oliver Chapman’s phrase). An important factor of operational success is truly Knowing Your Customer (KYC); appreciating the service your customer provides, the regions in which they operate, the assets they use for security, et cetera, all garner positive knowledge about where money and labour will result in your trade. SCF is centred around offering liquidity to suppliers and extending payments—insurers are generally happy to back working capital support, though they may err on the more conservative side. Knowing the ins-and-outs of your supply chain will only help attract insurance prospects and collaboration with other financial institutions—particularly now that the Trade Credit Reinsurance Scheme expired on June 30.
Merisa Lee Gimpel, Managing Director and Head of Working Capital Innovation at Lloyds Bank reminded everyone how important strong SCF is to achieve the delivery of ESG goals, particularly in the sense that many parties are inherently involved. This pushes for a greater need for collaboration. If every party has a stake in a chain, it is in everyone’s interest to pursue a more sustainable path down a road of social and environmental responsibility. That said, strong data, performance criteria, and a reliable rating system are prerequisites. Current operations with the International Association for Cereal Science and Technology (ICC) present solid standards for social governance, but a shared system of data would help ensure reliable corporate behaviour that abides by ICC standards.
There is mounting concern that the UK is not opening up digital finance at a pace fast enough to keep up with other competitive jurisdictions; while the Singaporean Networked Trade Platform (NTP) arrangement is welcomed by many as accepting the inevitable transition to financial digitisation, the UK is still unsure on how to commercialize the services. Law Commissioner for Commercial and Common Law Sarah Green also mentioned the recent UN proposition of the Model Law on Electronic Trade Documents (MLETR) and how this will catalyse the global transition to the acceptance of electronic documents and other technical data. Green is currently involved in changing draft bills to present to the UK Government, but due to bureaucratic propriety and unavoidable red tape, a polished version won’t be ready until Spring 2022- and even then, it is entirely up to the Government. Thus, there is a burgeoning worry that Britain will lose its competitive edge despite being a global financial hub—the digitisation of trade will save countless hours of money and labour, as well as save costs due to time-lag and inefficiencies. In a post-Brexit context, the Government should seize the opportunity to define itself as a tech-savvy nation.
NatWest’s Head of Working Capital & Trade Products Mirka Skrzypczak posited an urgent need to adapt now and shift our markets instead of waiting for the law to adapt. While many are expecting a reformed UK legislation next year to accept electronic documents in financial trading, there is an equivalent skepticism that the deadlines will truly be met and negotiations will effectively succeed. Skrzypczak also made the perspicacious point that so long as each jurisdiction maintains differing legislative integration of digital trade, we will surely have splintered trade agreements as we recover from the pandemic. CEO of Trade Information Network Sudhir Dole mentioned the need for a global information registry, portraying a convenient means of collaboration and communication. We have the technology; there are a variety of Distributed Ledger Technologies (DLT) that are able to help with SCF, so if we could integrate DLTs with Internet of Things (IoT) and technical devices with an acceptance of e-commerce, traders and service-operators would be liberated. The Head of Institutional Sales at the Fineon Exchange Richard Jones agreed with Skrzypczak that SMEs should adapt to digitisation along with KYC to best prioritize your digitisation strategy.
Sufficient, but not Comprehensive
The UK Government clearly has much to concern itself with in terms of sufficient state intervention with the financial services sector. Changes in appetites for risk exposure across the board is symptomatic of fragmented economic recoveries, and the rise of strong competition in a post-Brexit era is pushing SMEs’ security into unknown terrain. Just like Government policies, this article is far from comprehensive in addressing all the important themes covered in the GTR 2021 Conference; however, we will be following this up with two more articles exploring the Trade Credit Insurance Market with Political Risk, as well as Exporting Relationships with trans-Atlantic comparisons. Let’s hope state policies can follow suit! In the meantime, SMEs have been clearly advised to embrace financial digitalization by prominent agents in the industry, as well as Knowing Your Customer to ensure a secure and controlled Supply Chain. In bolstering awareness of your societal and environmental footprint and showing progress, SMEs are likely to get attention and traction with funders and financial services. To use the words of Grant Rudgley, Project Manager of Sustainable Finance at Cambridge University, “You are not alone”; many business owners are in the same boat. Have faith that evidence of promising efforts and sensitivity to the issues stated above will ensure financial attention and co-operation.