How Technology Helps in Trade Finance Compliance

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How Technology Helps in Trade Finance Compliance

By Sarah Dawson, CFO Tech Outlook | Tuesday, January 26, 2021

The new technologies help the banks play an essential role in allowing international trade to the customers. 

FREMONT, CA : Banks play a critical role in enabling international trade by offering a wide range of offers to their customers. Financing the supply chain involves distributing short-term credit to provide the buyer and seller with better working capital. Trade finance includes lending money to support commodity trading or working with export credit agencies to give otherwise risky financing. There are numerous compliance checks associated with these offerings in both cases.

Countless importers and exporters depend on these financial intermediaries to decrease their risk exposure. Due to increasing tariffs, geopolitical, and market instability, with trade ties in a state of heightened uncertainty over the past several years, handling trade finance has become considerably more difficult. In addition, the growing expense of supplying trade finance, combined with greater regulatory scrutiny, weigh on the growth prospects for banks' trade finance.

Seeking efficiency

During its life cycle, a standard trade transaction goes through several compliance tests, with every inspection racking up expense along the way. On average, a large commercial finance bank will spend on risk, enforcement, sanctions, and anti-money laundering (AML) tasks anywhere from US$25m to US$42m annually, all without increasing its business.

The continued use of paper to log millions of transactions underpins these activities. While most banks realize that it is expensive and time-consuming to use paper, the transition to automation has been sluggish, with few feasible solutions successfully implemented across the industry.

Trade finance banks need to adjust how they handle their manual enforcement processes and the present detection measures to counter illegal trade finance activity to overcome these key challenges. Technology has a critical part to play here. p Increased automation, along with artificial intelligence (AI) and machine learning (ML), will help decrease overall operating costs for trade financing and enhance the customer experience.

One global trade finance bank agreed that by coordinating with external partners to find a creative, digital solution that could help the trade finance industry, it had a greater chance of successfully implementing these required changes.

The bank's earlier experience working with EY teams and its faith in EY technology partner SAS encouraged it to expect that the three companies could find technical solutions to their paper-based, manual processes by working together. It allows the bank to play a significant role in the future of promoting and funding international trade.

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