Media Appearances

Trade Finance Global: A World Without LIBOR – Perspectives on the Transition from BAFT, ITFA and JPMorgan

Almost two weeks have passed since the retirement of the world’s most important number: the London Interbank Offered Rate (LIBOR).

For almost half a century, LIBOR functioned as a benchmark for global interest rates, and its ups and downs influenced an entire universe of financial instruments.

From short-term unsecured loans, to floating rate contracts such as derivatives, corporate debt, mortgages, and home loans, LIBOR affected the cost of credit across regions, industries, and currencies.

It was calculated through a daily survey of major global banks, who were asked what their borrowing costs were expected to be over a number of timeframes, up to 12 months.

The highest and lowest quotes were dropped, while the rest were reduced to an average that formed the rate.

So integral was LIBOR to the global financial system, that at its peak in 2020, over $400 trillion in outstanding contracts were exposed to it.

It should come as no surprise, then, that with LIBOR’s demise came a sense of foreboding for the trade finance world.

As the Bank of England’s Alastair Hughes told Trade Finance Global: “If you’re burying your head in the sand because someone’s told you LIBOR was going to continue, or you don’t have to do anything – that’s definitely not the case.

“LIBOR will cease, so you do need to engage, you need to understand what your exposure to the LIBOR rate is, both in terms of future use of products, and, indeed, those legacy products.”

A Financial Millennium Bug

Some worried that LIBOR’s cessation – which took place at midnight on December 31, 2021 – had the potential to cause a ‘Y2K moment’ for global finance.

Also known as the ‘millennium bug’, older readers will recall that this mysterious creature had once threatened to bring down the world’s computer systems overnight.

As 1999 gave way to the year 2000, technicians worried that the widespread use of only two digits for years in the date format of computer programs could cause a global IT crash, as the clocks ticked over at midnight December 31.

Thankfully, however, the transition from 1999 to 2000 passed mostly without issue, and the bug turned out to be quite the anti-climax.

In a similar manner, lights off on LIBOR hasn’t led to a financial meltdown.

On the contrary, the trade finance world has adapted quite smoothly to life without LIBOR, thanks to a new menu of alternatives for banks and corporates both large and small to choose from.

LIBOR Alternatives in Practice – The View from ITFA

As chairman of the International Trade and Forfaiting Association (ITFA), Sean Edwards has had a unique view of the LIBOR transition.

Speaking to Trade Finance Global, Edwards said that the transition has caused very few issues so far for ITFA’s 300-plus members.

“For those currencies where LIBOR is no longer quoted, such as sterling and yen, the transition process has been largely successful,” he said.

“There was a small overhang of deals into the New Year, which we expect to be cleared up in Q1.”

As previously reported by Trade Finance Global, among the alternatives to LIBOR is an interest rate known as synthetic LIBOR.

Synthetic sterling LIBOR is based on the sum of the one-, three-, or six-month Sterling Overnight Index Average (SONIA) reference rate, which is provided by the ICE Benchmark Association (IBA) and the International Swaps and Derivatives Association (ISDA).

Edwards said he sees synthetic LIBOR as a “refuge for the desperate only”, but added that it is “unsurprising” that it has nonetheless found a user base, given that there is “really no choice but to find an alternative.”

Transition from USD LIBOR presents a greater challenge, however, as it will continue to exist in some form until mid-2023.

“With pre-2022 committed facilities continuing to be priced on this basis, there is a competing and confusing array of alternatives to choose from,” said Edwards.

“The regulators – both in the UK and the US – have been clear that they wish to see no new USD LIBOR-denominated transactions, and require banks to reduce the number of legacy transactions.

“However, globally, not all regulators may take the same view, and it is not always crystal clear how a new transaction is defined. This is the problem of new drawings under pre-2022 uncommitted facilities.”

From the menu of available alternatives, Edwards’s personal recommendation is on the Term Secured Overnight Financing Rate (SOFR).

Term SOFR is an observed rate based on real transactions, and is published by the Federal Reserve Bank of New York as both an overnight rate and as 30-, 90-, and 180-day compounded averages of observed rates.

“The direction of travel is clear, not least because Term SOFR is where the liquidity is and where it percolates through,” said Edwards.

“Needless to say, ITFA will be doing its best to clear up the confusion.”

Trade Finance Global has also been involved in clearing up that confusion, having partnered with ITFA to launch a LIBOR For Trade Finance Hub in June last year.

BAFT Calls for ARRC to Endorse 12M Term SOFR

Observers at another industry body, BAFT (Bankers Association for Finance and Trade), have had a similar experience as ITFA’s Edwards.

Diana Rodriguez, Vice President for International Policy at BAFT, agreed that no one rate will replace USD LIBOR in the short-term.

Instead, it will be up to banks to decide which one best suits their needs, now that two tenors of USD LIBOR have ceased, and regulators have been clear that the remaining tenors are for new contracts or renewals.

At BAFT, Rodriguez said she has seen a “significant uptick” in the use of Term SOFR, which was endorsed by the New York Fed’s Alternative Reference Rates Committee (ARRC) in July last year.

She added that the Bloomberg Short-Term Bank Yield Index (BSBY) is also under consideration among BAFT members for certain trade finance products.

“For now, what we are seeing is that one rate will not replace LIBOR,” said Rodriguez.

“Regardless of which rate an institution chooses, bank examiners will want to see that a bank is meeting the safety and soundness principles laid out by regulators.”

Rodriguez stressed that banks should have a clear understanding of the composition of the rates they intend to use, and should have transition plans in place for committed and uncommitted facilities alike.

They should also have plans to effectively communicate with clients throughout the transition process.

“In the final months of 2021, regulators issued clear regulatory guidance, stating that banks need to employ risk management plans to pivot from LIBOR to alternative reference rates,” she said.

“In the coming weeks and months, the trade finance industry would like to see the ARRC formally endorse the 12-month Term SOFR rate, as well as greater industry coalescence on the credit adjustment spread.”

Communication is Key – JPMorgan on Delivering LIBOR Transition to Clients

At JPMorgan, America’s largest bank by market cap, the challenge of communicating LIBOR transition to clients has also been a high priority.

Natasha Condon, Global Head of Core Trade at JPMorgan, said that LIBOR transition presented not just one challenge for the bank, but several challenges rolled into one.

”Firstly, a strategic one, to align the bank’s funding model with regulatory guidance, which has changed multiple times during the preparation stage,” said Condon.

“Secondly, a technology challenge, as not only our systems, but all of our clients’ systems need to be updated to handle the new risk-free rates.

“And thirdly, and most importantly, a communication challenge for the bank with its clients – both corporates and financial institutions.”

Echoing both ITFA and BAFT, Condon said the transition at JPMorgan was well managed, thanks to early preparation and close cooperation with clients.

“The working group at JPMorgan did a fantastic job of managing this transition on all points, and from a technology perspective, I could not have asked for a smoother switchover,” she said.

“But especially in trade finance, I think our key strength has been in client communication, which turned out to be the most critical issue of all.”

Condon acknowledged that, for clients, the LIBOR transition has the potential to be “very confusing”, since different banks may take different approaches to the pricing of a deal, which can make it difficult for clients to compare quotes between providers.

“Our clients in trade finance vary from the most sophisticated banks and corporates – who are already set up to handle multiple rates and fully understand the differences – to smaller clients who have never heard of any of the alternative rates, and have been working happily from LIBOR for many years,” she said.

In practical terms, Condon said that much of the heavy lifting behind the LIBOR transition at JPMorgan therefore fell to the sales team, who were called on to educate and inform clients, and pitch alternatives that best suit their needs.

“The key for our transition was to agree a very simple, extremely transparent communication plan, so that every client who gets a quote from JPMorgan understands exactly what rate they are being offered, and how that compares to the rate they might have been used to before,” she said.

“A lot of the burden fell on our sales team to take our message to the clients, and to ensure they were completely clear on what we were doing.

“As soon as we started communicating in this way, we found that our conversations with clients improved dramatically, and they were much more comfortable doing business based on the new rates.”

Global Trade Review: ICC Targets Digital Trade Legal Reform in 100 Countries with Industry-Wide Board

Via Global Trade Review

The International Chamber of Commerce (ICC) has formed an advisory board comprising intergovernmental, policy and industry actors in the global trade and trade finance industry, in order to accelerate progress on the worldwide legal reform needed to enable digital trade.

Launched today under the auspices of the ICC’s Digital Standards Initiative (DSI) governance board, the Legal Reform Advisory Board (LRAB) is co-chaired by Chris Southworth, secretary general of ICC UK and Valentina Mintah, customs and logistics expert and member of the ICC executive board. Its members so far include the Asian Development Bank (ADB), BAFT (Bankers Association for Finance and Trade), the Commonwealth, ICC France, ICC Germany, ICC Mexico, the International Trade and Forfaiting Association (ITFA) and the United Nations Commission on International Trade Law (UNCITRAL).

GTR understands that 30 organizations in total have agreed to join the board, although these are yet to be announced.

The aim of the LRAB is to combine its members’ reach and influence to drive a globally harmonized, digitalized trade environment. “We have made enormous progress on legal harmonization over the last two years. The LRAB will play a vital role in helping us scale legal reforms,” says Southworth.

He tells GTR that the board will immediately get to work on numerous fronts. One of these will be on maintaining momentum at the G7, following the commitment made earlier this year by the intergovernmental group’s digital and technology ministers to adopt electronic transferable records in international trade transactions. In addition, the LRAB will focus its efforts on scaling the initiative up through the G20 – aiming to achieve a similar commitment in 2022.

Another area of work is within the European Union, where the LRAB will set its sights on getting an EU-wide mechanism in place to facilitate the alignment of EU laws to the UNCITRAL Model Law on Transferable Electronic Records (MLETR).

Other tasks on the to-do list include obtaining a Commonwealth ministerial commitment at the Commonwealth Heads of Government Meeting, which will be held in Rwanda in 2022, as well as working to incorporate legal harmonization into the framework of the African Continental Free Trade Area. Southworth tells GTR that LRAB will seek to secure funding for lower-income countries to enable them to implement the necessary legal changes.

“Digitalization is key to narrowing the US$1.7tn trade finance gap, but we can’t get there without an enabling legal environment. Reform is needed and the LRAB will help us scale existing efforts,” says Steven Beck, head of trade and supply chain finance at the ADB.

The LRAB also intends to work with the World Trade Organization to include a commitment to MLETR alignment in its plurilateral e-commerce agreement.

Finally, the LRAB will support individual governments to use their bilateral trade negotiations – such as those already agreed or underway between Singapore and the UK, the Abu Dhabi Global Market and China, as a vehicle to align legal frameworks and build out a network of modern digital trade highways.

“The Covid-19 pandemic massively accelerated digital transformation across a range of sectors, but outdated legal frameworks continue to inhibit the digitalization of trade finance,” says Raoul Renard, deputy director of legal reform at the DSI. “I look forward to working with our co-chairs and LRAB members – such as the ADB – to enable the necessary legal reform and bring trade finance into the 21st century.”

“Everyone coming together within the LRAB sends a strong message to policymakers and governments worldwide that industry is serious about effecting legal reform as well as ensuring a level playing field so that no-one is left behind,” Southworth tells GTR.

He adds that he expects to see “upwards of 100 countries” getting on board over the course of 2022-23.

Global Trade Review: BAFT Appoints Scott Stevenson as Senior Trade VP

Via Global Trade Review

BAFT (Bankers Association for Finance and Trade) has appointed Scott Stevenson as senior vice-president of trade, following the retirement of industry veteran Stacey Facter.

Stevenson joins from AF Capital Partners, where he was a senior advisor providing expertise on structured and project finance for developing banks in emerging markets.

He previously spent more than 14 years at the International Finance Corporation (IFC), including a role as senior global manager for trade and supply chain solutions, and has also held positions at International Financial Consulting and the World Bank Group.

Stevenson was also previously regional head of financial institutions at Standard Chartered Bank in Singapore, and between 2017 and 2020 was chief executive of Savia Trade Management Company, an Africa-focused financial intermediary that directly targets smallholder farmers and agri SMEs.

He takes over the role previously held by Facter, who stepped down after more than eight years in the position. Prior to that she worked in a variety of trade and securities roles at JP Morgan over a period of over 11 years.

BAFT’s president and chief executive Tod Burwell hails Stevenson’s “wealth of experience in trade”.

“His diverse geographic experience, coupled with his commercial banking and multilateral development banking background, is a great foundation to provide our members around the world with the insight, tools and resources they need to help them succeed in trade finance,” he says.

Global Finance: Adversity Breeds Opportunity

Via Global Finance

After a horrible 2020, transaction banking is poised for a rebound.

Optimism permeated discussions during the 2021 annual meeting in June of the Bankers Association for Finance and Trade (BAFT). More than 2,000 attendees from 66 countries actively discussed the status and future of trade finance during the four-day virtual event.

The opening and closing keynotes provided strong economic outlooks as bookends for the event. Economists from Bank of America (BofA) and HSBC estimated that the global GDP was on track to reach a 5% or 6% growth rate in the second half of the year.

Individual GDP growth will vary country by country, noted Brian Moynihan, chairman and CEO of BofA and the closing keynote.

According to Michael Roberts, CEO of HSBC USA and the opening keynote, there are some areas of weakness. “Brazil and India see some improvement despite their horrific experiences with Covid-19.” However, the markets with strong growth correlate with areas that have higher vaccination rates, he added.

Meanwhile, BofA economists predict that US GDP growth could reach as high as 7% in the second half of the year, after reaching a 5% growth rate in 2020. This would be a doubling, or even a tripling, of GDP growth for the US, which has seen its GDP growth fluctuate between approximately 2% and 3% for the past few decades.

According to Moynihan, much of the growth could be tied to unspent stimulus payments sitting in customer accounts. “We estimate that 65% to 75% of it is still in our customers’ accounts,” he said. “And there is still the possibility of even more stimulus.”

If businesses continue to face supply chain issues, it could constrain GDP growth, he added.

Knock-On Effects

Covid-19’s near shutdown of the global economy in 2020 changed the face of transaction banking by quickening technology adoption while eliminating many inefficiencies.

The pandemic forced every bank to digitalize its offerings, according to Moynihan: “If we did the Paycheck Protection Program via mail, we would never have gotten there.”

Digitalization went from a “nice to have” to a business imperative for most banks. For example, HSBC expects to digitalize 80% of its controls in the next eight to 12 months.

“Clients are not waiting around for banks to get their act together,” said HSBC’s Roberts. “That is why we are maniacally focused on this.”

According to panelist Andy Kollegger, group managing director and head of Corporate and Institutional Clients International at UBS, client companies also have raised the bar on the quality of the digital offerings they demand. “They don’t want to get weekly reports in stacks of papers,” he said. “They want to access online and real-time information. They don’t want to authenticate using a myriad of little machines using code. They want to authenticate online with a secure system.”

From the start of the pandemic lockdowns, client concerns over deposits and principal lessened while they pressured banks for more-granular monitoring of cash flows and improved forecasting capabilities. “Some days [the forecasting] was a day in advance and sometimes a week in advance,” said co-panelist Diane Reyes, group general manager, global head of Liquidity and Cash Management at HSBC. “Then it went quarterly, and then six months in advance.”

Return to Normality?

Tom Wolfe’s novel You Can’t Go Home Again might as well have been about transaction banking. The pre-Covid economy no longer exists and has been replaced with shortened and simplified supply chains since the start of the pandemic.

“Many businesses are moving from just-in-time strategies to just-in-case strategies, which reduce the reliance on certain suppliers,” said panelist Michael Spiegel, global head of Transaction Banking at Standard Chartered Bank.

Such moves have introduced new markets and trade corridors, as more investments pour into markets like India, Bangladesh, Vietnam, Mexico and various Central and Eastern European countries, he added.

On a more personal level, banking heads are still mulling how to bring remote workers back into their offices. The conversation is no longer “if,” but “when” and “how.” For some, it will mean going back to the old way, perhaps with slight modifications. “At the end of the day, we are a ‘work from the office’ company,” said BofA’s Moynihan, while acknowledging that “we might have to redefine what that means.”

Moynihan believes the prolonged time away from the office has already adversely affected tens of thousands of employees the bank has hired since 2019. “The kids we hired in 2019 worked in the office for only a short time and those we hired in 2020 and 2021 have never been in the office,” he noted. That has hindered new employees in gaining the benefits of informal conversations with mentors and experienced colleagues. For Moynihan, at least, “to get the culture right and the risk management right means getting back to the office.”

Yet, some institutions found benefits from remote work, including increased productivity, and seek to leverage the new capacity. HSBC is among those expecting to take a hybrid approach, splitting employee schedules between working from the office and working remotely. “We can perform in a remote environment and have proven so,” said Roberts.

ESG Blooms

According to various conference speakers, one topic that the pandemic did not sidetrack, even temporarily, is the continued growth and interest in sustainable development and the investments that enable it. If anything, the pandemic seemed a reminder of rising risks to sustainability.

“I don’t know of a sector or a CEO who has not thought about it and is not addressing it,” said HSBC’s Roberts.

On April 21, 43 banks founded the Net-Zero Banking Alliance, whose current 53 members commit to aligning their investment portfolio with achievement of net-zero carbon emissions by 2050 in tandem with the United Nations’ Race to Zero initiative.

HSBC, a founding member of the Alliance, expects to reach zero emissions within its operations by 2030, he added.

UBS, also an Alliance member, signed the Principles for Responsible Investment of the Financial Stability Board’s Task Force for Climate-related Financial Disclosures and declared that sustainable investment was the default for discretionary accounts, said UBS’ Kollegger. “That is a big move for the world’s biggest wealth manager.”

BofA already discloses its metrics for sustainable investment using the environmental, sustainable and governance (ESG) reporting framework developed by the “Big Four” accounting firms and released in 2020.

Meanwhile, HSBC has expanded its ESG offerings beyond simply the asset side of its balance sheet.

“During Covid-19, we felt that clients should be able to participate on the depositor liability side of the bank’s balance sheet,” explained HSBC’s Reyes. “There are such things as green deposits” that enable clients to pledge their deposits toward offsetting green financing and permit them to claim credit in their corporate filings.

“We started hosting these offerings in three markets and will move into many more markets this year,” she added.

According to Moynihan, these initiatives are the only way the world will solve its most significant problems. Without incorporating sustainable investments within finance, he believes, there is not enough money to meet the United Nations’ 2015 Sustainable Development Goals, which he estimates would take $6 trillion annually. By using defined metrics, like those established by the World Economic Forum’s International Business Council and others, companies can deliver to their shareholders and society. “They are not mutually exclusive,” he concluded.

World Economic Forum: How Decentralized Finance Will Transform Business Financial Services

Via World Economic Forum

Decentralized finance (DeFi) is emerging as a tool for smaller businesses in developing markets, particularly for remittances and small loans; the transaction banking industry is beginning to see DeFi’s potential to overhaul the inflexibility of present processes; uptake of DeFi in transaction banking could open up new capital opportunities for larger companies and increase liquidity for SMEs.

Decentralized finance had a resurgence last summer. Cryptocurrencies like bitcoin and ether are now becoming more widely accepted for payments and USD Coin (USDC) has made significant progress towards being an asset that will maintain its value without future depreciation.

At the same time, the blockchain technology that underlies cryptocurrency and its supporting financial infrastructure are on their way to offering a system of financial rails in parallel to – and connected with – traditional financial infrastructure.

Both Coinbase and Compound Treasury have released USDC-based loans that guarantee at least a 4% yield (far higher than traditional products of a similar risk), and smaller platforms are offering cross-border access to capital with rates that are far more variable but would be unavailable otherwise. So far, this growth in loan products has come from the retail sector: individuals holding and trading crypto-assets for personal use. Banks such as Morgan Stanley and US Bank now offer crypto-products for their wealth management clients. But what about businesses?

Since its inception, DeFi – literally decentralized finance or blockchain-based forms of finance that do not rely on centralized intermediaries such as banks – has been adopted to some extent by smaller businesses in developing markets whose needs are unmet by the traditional banking system. For example, some businesses use payment companies like BitPesa in Africa, Tranglo in ASEAN and the major DeFi exchanges to either make direct payments or convert payment amounts to USD-backed stablecoin for cross-border remittance.

The greater transaction banking industry now sees DeFi as a potentially significant growth engine and disruptive force. Transaction banking addresses the operational needs and day-to-day transactions of businesses and financial institutions. Usually, only companies who are top customers of banks are able to have ready access to these services, which focus on managing the liquidity of a company, cash flows, trade and supply chain finance and other instruments needed to facilitate domestic and international corporate transactions. In 2020, industry-wide transaction banking revenue reached $1 trillion.

According to Samantha Pelosi, SVP of Payments and Innovation at BAFT, the largest trade association for transaction banking: “The potential efficiency gains and democratization of finance associated with DeFi are attractive to traditional financial institutions. However, DeFi negates the need for relationships with trusted intermediaries, which makes the model disruptive and somewhat alien to these banks.”

Virtually all major international commercial banks have at least piloted the use of blockchain for transaction banking services – which remain slow and cumbersome – but none of these pilots have involved DeFi. Rather, they focus on making bank processes more efficient and replacing traditional financial instruments with standardized digital assets. That means the approval and execution of transactions still ultimately go through the framework of traditional banking or more established fintechs. For example, a business’ credit risk is assessed based on financial statements and only applies to that specific business, without the ability to distribute risk across its system. The infrastructure around client support is also quite extensive, which means clients cannot be serviced without a high threshold cost. These practices hamper capital opportunities for larger enterprises and freeze out SMEs.

DeFi platforms provide an alternative system, not simply a plug-in to existing banks. Their decentralized nature means transaction onboarding and market-based risk assessments are much easier to scale across a business’ wider system because access to relevant information is not dependent on centralized processing or a prior relationship. Prior to DeFi, a business would have to complete anti-money laundering and “know your customer” checks for every source of capital and convince their counterparts to onboard to the same transaction banking programmes. They also would not be able to present evidence of performance on their debt or payables outside of financial statements.

DeFi allows for the exchange of trustable data across a system, mitigating these barriers to business financial services. Until now, however, most companies did not seriously consider DeFi as a viable alternative to their bank’s services because of the volatility of crypto-assets, regulatory uncertainty and the immature technology involved. Even Tesla’s purchase of $1.5 billion in bitcoin was motivated by the direct financial value of bitcoin as an asset, not by its transaction banking needs.

While DeFi previously solved the complex requirements around portable digital ID for businesses and has a roadmap for providing access to financial performance track records in transaction banking, it completely lacks two crucial elements: a one-to-one exchange with fiat currency; and interoperability between different blockchains so that counterparties could freely interact with one another. The former is necessary for cryptocurrency to offer a stable store of value that can be used as currency and to have an easily accessible interface with the traditional financial system. Interoperability is crucial for transactions to occur at scale in the highly fragmented blockchain space.

TXF News: BAFT: One Hundred Not Out

Via TXF News

One hundred years of an international trade body was a virtual party not to be missed. TXF spoke to Tod Burwell in the wake of the Bankers Association for Finance and Trade’s (BAFT) centennial celebration to find out what has been the secret of the trade organisation’s longevity, how it has helped moved international trade in a positive way, and what excites the organisation’s President and CEO about the future.

Interestingly, in the Articles of Association of BAFT in 1921, it was established to provide a medium by which its members may interchange opinions and establish uniform systems for the conduct of foreign business, “to urge the passage of wise and useful legislation and to oppose the enactment of prejudicial laws’ and to aid the development and maintenance of foreign trade.” That was back when BAFT was the Bankers Association of Foreign Trade, and it was purely a US organisation. It’s been fully global for a long time now, but those goals remain.

TXF: What’s the recipe for surviving 100 years and helping finance a century of global change?

Tod Burwell (TB): At the association’s 100th anniversary celebration I sat down with some of the chairs from the past 25 years who shared the issues they faced at the time and what BAFT did. What struck me was that there were always significant issues and significant challenges, whether that was 9/11, a debt crisis, the global financial crisis, or some other issue that was affecting the entire industry.

And as chair of the industry association, the challenge was how do we rise to the occasion to help support members. That remains what powers and motivates all of us as a staff, as a board and as an industry. The balance of the centenary conference was forward-looking – although we did cover BAFT’s history – there was a sense of being in the new century.

The economic axes of the world have been shifting, as has geopolitics. The pandemic has really accelerated some of the trends that were taking place before, whether it’s digitization, the implications of changing trade lanes, digital currency, etc. When I think about our role, we have to remain keen to the problems and challenges that our members are facing and the way we provide tools that will help them transition.

TXF: Are banks still the chameleons you characterised them as being in 2019 [before the pandemic]?

TB: The theme this year was more about the network and the importance of the network in connectivity. That was in a lot of ways brought on by the pandemic. When we talk about change, the first overriding theme is how we used to work before, forget it! That’s not how we will work going forward. Everyone has had to adjust how they how they go about their business, and their daily lives. CEOs and regional CEOs at our conference talked about how organizations are adapting for the next 10 to 20 years, whether that’s having hybrid work arrangements or how they are truly committing to diversifying the workforce.

Sustainability has been a topic for the past couple of years, but it’s become much more urgent now. And if you think about the workforce and the next generation of leaders, it’s part of their DNA. The expectation is that organizations are going to have to be environmentally and socially conscious and they’re going to have to be inclusive and diverse. And if you’re not, then you’re not going to be able to get the talent to drive your business. It wasn’t explicitly said, but the sense that I was getting is that organizations are changing because the people in them are changing.

TXF: One of secrets of evolution that has been important for BAFT is bringing up the next generation of trade bankers to hand on the baton through the Future Leaders program – can you tell us more?

TB: This has been one my personal favourite endeavours since I’ve been at BAFT and I’m super proud of having been part of this. It’s powerfully important that we as an industry prepare for the transition of leadership. We had our sixth class of Future Leaders just complete five projects and we’re a month away from preparing for our seventh cohort. We’ve already had the opportunity of seeing some of our Future Leaders becoming heads of transaction banking, or becoming members of our board of directors and to go on to do great things.

I sit on the board of an executive education program and we were discussing the curriculum for the next group of executive leadership development. The topics that were being discussed were exactly the topics that BAFT Future Leaders just spent 16 weeks looking into. It will be interesting to hear the takeaways from the executive leadership on those same topics and be able to compare and contrast with the findings of the BAFT Future Leaders class of 2021. We’re excited about continuing this program. This year was our largest class, with participants from several new countries. It continues to grow and we look forward to taking it to the next level.

TXF: You mentioned environment, social and governance (ESG) and diversity and change which have been themes of the event and how to secure for the next 100 years. How is the ‘S’ – social – working together with the other elements of ESG in BAFT?

TB: Initially, when environmental issues and climate change started to come into the banking sector the focus was really on green bonds and how does a bank finance and enhance certain sectors versus others. Over the past year or so the transaction banking industry has found ways to better service their clients because their clients have taken on ESG much more assertively, much more aggressively in some cases.

European regulators have been one of the early ones to lay out some benchmarks for the industry, but it’s been the private sector that has really driven this much more so than government policy over the past couple of years. The banks have found that they need to be very active and capable to serve the interests of their clients.

One bank CEO told me that around 70% of their clients have some sort of ESG initiative and that becomes part of their regular conversations. The shift has now started to move from the E to the S. And I connect this in some ways with the growing emphasis on DE&I [Diversity, Equity and Inclusion] as well. But it’s got a very regional or local flavour to it because the role for organizations in society depends on which society you’re talking about. One of the Future Leaders projects looked at sustainable finance, and another looked at DE&I. These are global issues, but the takeaway was that the needs of the market and the focus of the market varies drastically by localaity. And so not just the environmental piece, but the social construct and the role of the intermediaries [in both].

TXF: We’ve talked about ESG but in terms of also digitization of trade, central bank currencies, Libor transition, Basel III, the future of payments, all topics that came up in the Centenary conference, any highlights you’re particularly looking forward to?

TB: Everything that you mentioned is something that we have an active workstream on. So there’s no shortage of problems to solve! The issues around Libor and Basel III, prudential issues I look on as a core, steady state of things we need to do and focus on. Where the energy and the excitement will be in the next couple of years is clearly going to be around digitization, both in trade digitization as well as the future of payments and the role of digital currencies.

I reflect back on a lunch at SIBOS 2019 with some members of a central bank. I posed the question around digital currency and whether it was in the interest of central banks to really advance and being much more aggressive and assertive on the topic, as opposed to trying to stop the trend. At that time, there was a lot of pushback, scepticism, and a lot of uncertainty that digital currencies were in some cases being used for things that were not healthy for the overall financial system.

Two years on, we’re in a very different place. There are 60 or 70 different central banks around the world who have some projects to implement or advance digital currencies in their markets. That has the potential to fundamentally change how people transact. It has the potential to create a lot more inclusivity in markets where the underbanked are really challenged. It will also force banks to accelerate some of the innovations that they’ve been working on. So I am most excited in the next couple of years about the changes that will come from digitization in trade and flows.

BAFT’s virtual audience seemed to share some of Burwell’s enthusiasm for central bank currencies – asked whether they thought ‘do we need a central bank digital currency?’ Only 17% said ‘no’, nearly half (46%), said ‘maybe’ and fully 37% said a definitive ‘yes’. Watch this space.