Policy News

BAFT Releases Whitepaper on Cross-Border Faster Payments

BAFT announces publication of whitepaper on conditions necessary for a cross-border faster payments ecosystem.

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, today announced the publication of its whitepaper, Enabling Faster Payments Across Borders.

The paper discusses the cost-benefit analysis involved in moving forward with cross-border faster payments including user expectations and industry readiness for adoption. It also provides recommendations and key considerations to enable the development of a cross-border faster payments ecosystem.

“Baseline standards and processes must be established to address the open issues that make real progress on cross-border faster payments difficult to attain,” said Samantha Pelosi, senior vice president for payments and innovation, BAFT and co-chair of the BAFT Cross-Border Faster Payments Working Group, which produced the paper. “These issues fall into three broad categories of interoperability, business processes and compliance, and are similar to the frictions that the Financial Stability Board (FSB) and Committee on Payments and Market Infrastructures (CPMI) have identified as inherent to all cross-border payments.”

The publication of this paper is the first step of BAFT’s larger strategy to facilitate global faster payments by encouraging the designers of national and regional faster payments systems to include the capability at the outset. The paper and ongoing research by BAFT’s Global Payments Industry Council on best practices for the implementation of a faster payments system will serve as reference points for the association’s discussions with regulators, central banks, market infrastructures and system operators.

“To benefit international trade and economic growth, we need to enhance global connectivity by making payment systems in different geographies interoperable,” said Vinayak Prabhu, vice president, global transaction banking, Mashreq Bank and co-chair of the Working Group. “The paper provides recommendations along with potential models for building a seamless, transparent, and faster cross-border payments ecosystem.”

BAFT encourages entities that are currently building or upgrading their faster payments systems to incorporate the functionality and operating rules necessary for processing cross-border payments when the market is ready.

The development of the whitepaper began in the fall of 2019, when BAFT assembled a working group of 24 members based in North America, Europe, MENA, and APAC. A drafting sub-group of BNY Mellon, HSBC, iSoftware4Banks, Mashreq Bank and TD Bank wove the information into an important, future-looking resource.

To read Enabling Faster Payments Across Borders, visit BAFT’s Library of Documents under the BAFT Guidance on Industry Practices section or click here.

About BAFT
BAFT is the leading international financial services association whose membership includes large global and regional banks, service providers, and fintech companies headquartered around the world. BAFT provides advocacy, thought leadership, education, and a global forum for its members in transaction banking, including international trade finance and payments. For nearly a century, BAFT has expanded markets, shaped policy, developed business solutions, and preserved the safety and soundness of the global financial system.

BAFT Media Contact:
Blair Bernstein
[email protected]
+ 1 (202) 663-5468

GSCFF Announces Update to its Standard Definitions to Include Description of Corporate Payment Undertaking

On January 28, The Global Supply Chain Finance Forum (GSCFF) announced plans to update its Standard Definitions for Techniques of Supply Chain Finance to provide further clarity on the distinctions between the individual techniques.

The Global Supply Chain Finance Forum (GSCFF) – comprising BAFT (Bankers Association for Finance and Trade ), FCI (previously known as Factors Chain International), the International Chamber of Commerce (ICC), the International Trade & Forfaiting Association (ITFA) and the Euro Banking Association (EBA) – today announced plans to update its Standard Definitions for Techniques of Supply Chain Finance (Standard Definitions) to provide further clarity on the distinctions between the individual techniques.

Alongside the existing Receivables Purchase and retitled Loan sub-categories, a newly created Advanced Payable sub-category now includes three techniques: Corporate Payment Undertaking (CPU), Dynamic Discounting (DD) and Bank Payment Undertaking (BPU).

This update highlights and confirms the quality of the original content – first published four years ago – and the need to be agile in a dynamic field such as supply chain finance. Thus, it is intended to reflect an up-to-date view of current market practices within supply chain finance, in particular by establishing greater clarity between the Payables Finance Technique under the Receivables Purchase category and the CPU technique.

CPU is a buyer-led program within which sellers in the buyer’s supply chain can, at their option, access liquidity by requesting a discounted early payment. However, unlike a Payables Finance scenario, the finance provider does not purchase the underlying receivable from the seller, but rather, fully relies on the buyer’s irrevocable payment undertaking.

Christian Hausherr, Chair of the GSCFF, and European Product Head of Payables Finance, Trade Finance & Supply Chain Finance at Deutsche Bank, says: “At the time of publication, the Standard Definitions were deemed to be complete and widespread acceptance of the terminology confirms their benefit for the wider industry. Today, the GSCFF aims to bring further clarity to the techniques, with new description of CPU, DD and BPU. Adapting to current business practices, these updates will continue to encourage greater adoption of the Standard Definitions by market participants.”

The first description document on CPU has also been released today, with subsequent documents on DD and BPU expected over the coming months. Each description document will provide an overview of the technique’s definition, involved parties, distinctive features and variations, relevant risks and benefits, among other technicalities. Once the series has been published, a final updated version of the master Standard Definitions document will be made publicly available.

To access the description document on corporate payment undertaking, visit our Library of Documents under the Industry Definitions and Guidelines section or click here.

About the Global Supply Chain Finance Forum:
The Global Supply Chain Finance Forum was established in 2014 to develop, publish and champion a set of commonly agreed standard market definitions for Supply Chain Finance (SCF). Comprised of trade bodies BAFT (Bankers Association for Finance and Trade), FCI (previously known as Factors Chain International), the International Chamber of Commerce (ICC), the International Trade and Forfaiting Association (ITFA) and the Euro Banking Association (EBA), the industry consortium leverages its collective footprint to aid the target audience of SCF in gaining clarity and consistency on the various terms and techniques used. The main objective of the GSCFF is to support the sustainable growth of supply chain finance by establishing consistency and a standardized understanding of SCF across the industry. Subsequently, the GSCFF strives towards acknowledgement of its definitions and their benefits by its target audience, especially on the regulatory side. The GSCFF monitors and reacts to major market developments in all relevant matters for SCF. It is open to financial institutions, non-FI finance providers, accounting firms, investors, rating agencies, regulators and corporates who have a stake in SCF.

BAFT Releases Best Practices for New Financial Asset on Distributed Ledger Technology

BAFT announces the publication of both the Business Best Practices and Technical Best Practices, Version 1.1, for the Distributed Ledger Payment Commitment (DLPC).

WASHINGTON – BAFT, the leading global financial services association for international transaction banking, today announced the publication of both the Business Best Practices and Technical Best Practices, Version 1.1, for the Distributed Ledger Payment Commitment (DLPC). The DLPC is a digital asset and global standard for a payment commitment that can be used on any blockchain network and can operate across networks. First released in August 2020, this latest version of the DLPC Best Practices incorporates industry comments and experience from implementation in live transactions.

Investigating the use of distributed ledger technology to expedite the digitization of trade finance, the BAFT Innovation Council established the DLPC working group in 2016. It was tasked with producing standardized rules for the transformation of a payment commitment, the common core of all negotiable trade instruments, into a digital asset to be used in any trade finance solution sitting on any distributed ledger technology platform. The working group introduced the DLPC Best Practices for trial use in April 2019.

Since then, the DLPC has been implemented in live transactions as a digital asset backed by a traditional trade instrument, such as a guarantee, as a means for enterprises to finance international trade transactions and facilitate the ultimate resulting payments. With the recent guidance from the U.S. Office of the Comptroller of the Currency endorsing bank participation on blockchains and use of stablecoins for payments, the DLPC is in position to make a significant contribution to the new rails of transaction banking.

“In just a little over a year, the DLPC has grown from being a global standard for traditional payment commitments to a new financial asset and payment instrument in its own right,” said Rebecca Liao, co-founder and COO of Skuchain and co-chair of the DLPC working group. “The trade finance community was hungry for an innovation with a solid legal framework that would allow transactions to be digitized, de-risked, negotiable, and interoperable across platforms to promote greater liquidity and market efficiency.”

“The DLPC breaks new ground for financial services firms seeking to leverage the unique characteristics of distributed ledger technology,” said Samantha Pelosi, senior vice president for payments and innovation, BAFT. “Use of the DLPC facilitates the interoperability of disparate blockchain platforms and creates what is currently the only digital negotiable instrument with legal backing. These best practices provide for sound validity under Delaware law, and BAFT continues to advocate for the amendment of laws to grant similar legal status to digital negotiable instruments used in cross-border transactions.”

The DLPC working group consists of 12 representatives from BAFT and the following organizations: Arnold & Porter Kaye Scholer, CGI, Citi, GTBInsights LLC, Morgan, Lewis & Bockius, Queen Mary University of London, R3, Red Chalk Group, Skuchain, Standard Chartered, Surecomp, US Bank, Wells Fargo, and Young Conaway Stargatt & Taylor.

To read the DLPC Best Practices, visit our Library of Documents under the Industry Definitions and Guidelines section.

BAFT Media Contact:
Blair Bernstein
[email protected]
+ 1 (202) 663-5468

BAFT Releases SOFR: Trade Finance Priorities White Paper at 2020 International Convention

New report examines the implications of transitioning away from LIBOR to SOFR for the trade finance industry.

WASHINGTON — BAFT, the leading global financial services association for international transaction banking, today announced the publication of SOFR: Trade Finance Priorities to inform the policy community and the industry on the impact of a possible transition to the Secured Overnight Financing Rate (SOFR) from the London Inter-Bank Offered Rate (LIBOR).

Trade is essential to GDP growth and supports commercial flows and supply chain sustainability globally. In 2019, global trade flows totaled $18.1 trillion, with an estimated $9.77 trillion of that sum comprised of bank intermediated trade. USD LIBOR is the most widely used benchmark across the trade finance industry globally. As the market prepares to transition away from LIBOR to Risk Free Rates (RFRs) by the end of 2021, BAFT member institutions have been working steadily to prepare for the change.

“This report examines the impact of the transition from LIBOR on the trade finance business and concludes there is an imperative for a forward-looking term rate to ensure the uninterrupted provision of financing to support cross border trade,” said Diana Rodriguez, vice president, international policy at BAFT. “We were pleased to see the Alternative Reference Rate Committee’s (ARRC) September publication of a Request for Proposals for a Term Rate administrator, and we welcomed subsequent dialogue with the Federal Reserve Board on the findings of this paper. We look forward to continued progress toward the publication of a forward-looking term SOFR in the first half of 2021 for use by the Trade Finance market.”

The white paper is the culmination of several months of analysis by the BAFT IBOR Transition Working Group’s Suitability of Rates subgroup, as well as input from a global BAFT member survey. The working group also considered findings from the BAFT Future Leaders’ Group on IBOR Transition and incorporated elements of their work in this paper. Though members have made progress in identifying areas where overnight SOFR could be used, BAFT believes most transactions require a forward-looking rate to provide certainty to trade buyers and sellers.

“As experienced trade finance professionals, the working group members have provided market views stressing the critical importance of a forward-looking term rate from a trade finance practitioners perspective,” stated Priyamvada Singh, managing director & regional head, product, propositions & structuring, global trade and receivables finance, HSBC Bank USA. “Considering trade finance products are globally used to finance a significant volume of merchandise trade, and that users of trade finance products globally span a wide range of companies, especially a majority of Small and Medium companies (SMEs), the members recognize the need for industry consensus for a workable solution that can provide cost certainty and pricing transparency for robust adoption.”

“Establishment of a SOFR term rate and clarity on the timing of its launch are critical for the trade market to finalize conventions and support the transition away from LIBOR,” said Doug Laurie, director, global programme lead- LIBOR transition loans at Barclays. “Getting the SOFR transition right will have an impact on banks and their customers globally given the dominance of the U.S. dollar for trade transactions.”

Rodriguez of BAFT and Laurie of Barclays will host a workshop on the implications of the transition to SOFR for trade finance on Friday, Nov. 20, 2020 at 8:00 a.m. ET during BAFT’s International Convention.

To read the full white paper, visit our Library of Documents under the BAFT Guidance and Industry Practice section or click here.

BAFT Media Contact:
Blair Bernstein
[email protected]
+ 1 (202) 663-5468

Response to FinCEN ANPR on Anti-Money Laundering (AML) Program Effectiveness

On November 16, BAFT, along with BPI and others, submitted a letter to FinCEN supporting regulatory action that would permit entities to enhance the effectiveness of their AML programs.

BAFT along with seven other trade associations submitted a response to an advance notice of proposed rulemaking issued by the Financial Crimes Enforcement Network (“FinCEN”) related to AML program effectiveness.

The associations communicated their view that regulatory action is necessary to enable the allocation of resources to enhance the effectiveness and efficiency of AML programs, while remaining compliant with the legal requirements of the Bank Secrecy Act (“BSA”). They offered several high-level recommendations to FinCEN as it moves forward with the rulemaking process.

To read the joint letter and learn more about the associations’ recommendations, visit our Library of Documents under the Comment Letters section or click here.

Global Supply Chain Finance Forum Issues Payables Finance Guidance to Drive Further Clarity on Terms and Techniques

Payables Finance Technique – Market Practices in Supply Chain Finance is the second in a series of guidance documents set to further encourage industry-wide adoption of uniform terms and techniques.

The Global Supply Chain Finance Forum (GSCFF) – an initiative comprising the International Chamber of Commerce (ICC) Finance for Development Banking Commission, BAFT (The Bankers Association for Finance and Trade), the Euro Banking Association (EBA), FCI, and the International Trade and Forfaiting Association (ITFA) – has released a new guidance document on payables finance, to aid financial institutions, accounting firms, rating agencies and regulators in gaining clarity and consistency on the various terms and techniques.

While uptake and feedback on the 2016 Standard Definitions for Techniques of Supply Chain Finance has been positive, much work is still required to further align terminology across the complex ecosystem of stakeholders involved in international supply chains.

As part of this drive for clarity, the second Market Practices in Supply Chain Finance publication focuses on payables finance – a technique and form of receivables purchase, flexibly applied, in which sellers of goods and services sell individual or multiple receivables (represented by outstanding invoices) to a finance provider at a discount. In turn, the guidance document takes a wider look at this important technique and provides a comprehensive overview on how payables finance can be used in practice.

“When all parties use similar techniques and terminology, it makes for a streamlined and efficient process,” said Christian Hausherr, European Product Head of Supply Chain Finance at Deutsche Bank and Chair of the GSCFF. “Our hope is that this report will lead to an industry-wide, uniform adoption of the payables finance technique.”

The publication represents a go-to resource that finance providers can refer to for guidance on common market practices in risk management, documentation and operational handling for payables finance transactions.

To read the full guidance document, visit our Library of Documents under the Industry Definitions and Guidelines section or click here.

About the Global Supply Chain Finance Forum:
The Global Supply Chain Finance Forum was established in January 2014, as an initiative of these industry associations to address what has been recognized as a need to develop, publish and champion a set of commonly agreed standard market definitions for Supply Chain Finance and for SCF-related techniques.

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