BAFT Response to EC Public Consultation on AML Action Plan

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On August 27, BAFT responded to the European Commission’s Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing.

BAFT supports greater coordination and a more effective framework to prevent money laundering and terrorist financing across Europe. In drafting the response to the consultation, BAFT surveyed members in Europe to assess their views on the European Commission’s AML Action Plan which includes six pillars:

  • Effective implementation of existing rules
  • A single EU rulebook
  • EU-level supervision
  • A support and cooperation mechanism for financial intelligence units
  • Better use of information to enforce criminal law
  • A stronger EU in the world

To view the comment letter, visit our Library of Documents under the Comment Letters section or download the pdf here.

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New report from the industry coalition GSCFF addresses head-on the criticisms relating to impact on suppliers, financial reporting and potential credit and liquidity risks.

The Global Supply Chain Finance Forum (GSCFF) – comprising BAFT (The Bankers Association for Finance and Trade), FCI, the International Chamber of Commerce (ICC), the International Trade & Forfaiting Association (ITFA) and the Euro Banking Association (EBA) – today released a paper in response to growing concerns regarding the use of supply chain finance (SCF) and, in particular, payables finance programs. The report, Ensuring Payables Finance Remains a Force for Good, aims to address criticisms across three key areas: the potential adverse impact on suppliers, issues relating to financial reporting and transparency, and overall program risk.

Christian Hausherr, Chair of the GSCFF, as well as European Product Head of Payables Finance, Trade Finance & Supply Chain Finance at Deutsche Bank, says: “When used in an appropriate manner, payables finance programs enable buyers and suppliers to optimize their working capital and strengthen their relationships with each other. However, reports relating to the misuse of payables finance programs, notably around suppliers being forced into accepting unfavorable terms, are extremely worrying. As such the GSCFF has taken the initiative to address these concerns head-on, to promote understanding of the technique and its use.”

The report addresses topics ranging from the alleged “bullying” of small and medium-sized enterprises (SMEs) to join payables finance programs, to issues around financial disclosure, to impact of COVID-19 on the use of the technique. Key conclusions include:

  • SMEs should never be “bullied” to join such programs. Reports of such practices are highly concerning and taken for the GSCFF. They also ignore the balance that can be achieved through well-structured payables finance programs, which not only help buyers and therefore assure the health of the overall supply chain, but also provide prompt access to funds for suppliers on an affordable basis, addressing the systemic SME cashflow challenge.
  • Suppliers should feel that there is absolutely no obligation to participate. If they are not in urgent need of cash, they can opt to receive payment in full on the original due date. The report strongly encourages finance providers to follow accepted industry practice in considering extensions of terms.
  • Liabilities rising from SCF programs do not create additional financial risk above and beyond those that arise from trade between a buyer and a seller. Negative outcomes can be avoided by implementing strong credit analysis of a corporate’s balance sheet before engaging in a SCF program.
  • Transparency of financial reporting relating to the usage of SCF programs is desirable but requires developing parameters for disclosure in corporates’ financial statements in coordination with accounting standards bodies.
  • COVID-19 may have resulted in increased use of SCF, yet this does not create increased risk within the system as it would be counter-productive and inappropriate for banks to swiftly withdraw credit lines.

The report follows extensive work from the GSCFF on promoting strong industry standards and agreed definitions, including the release of the Standard Definitions for Techniques of Supply Chain Finance and Payables Finance – How It Helps Global Supply Chains.

About the Global Supply Chain Finance Forum:
The Global Supply Chain Finance Forum (GSCFF) 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 (The Bankers Association for Finance and Trade), FCI, the International Chamber of Commerce (ICC), the International Trade & 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 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, in specific on the regulatory side. The Forum monitors and reacts to major market developments in all relevant matters for Supply Chain Finance. It is open to financial institutions, non-FI Finance providers, accounting firms, investors, rating agencies, regulators and corporates who have a stake in supply chain finance.

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On August 20, BAFT’s Board Chair, Mark Garfield, published his monthly communication to the wider BAFT membership.

I fondly remember my first trip to Europe as a teenager in the 1970’s. My wallet was full of bulky traveler’s checks, and my siblings and I would stand in long bank lines to exchange the traveler’s checks for local currency. We paid for everything in banknotes, as cards were not accepted. Upon arriving in a different country, we joined yet another line at another unfamiliar bank to exchange our currency again. It was fun to handle foreign notes with their colors and history. We tried to impress each other on being the quickest and most accurate in calculating each exchange.

Those days are long gone. My children never use checks, have likely never heard of traveler’s checks, and certainly have never heard of Pesetas! They give no advance thought to payments and conversion when traveling. Their daily financial transactions are mostly digital. When they see me writing a check, they think I live in the “old world” of financial transactions. I remind them that one thing from this “old world” remains the same: the role of the bank is most important in payments processing and continues to be the key mechanism in making secure and efficient payments and currency exchanges globally.

BAFT, as the leading international transaction banking association, has recognized the need to place greater emphasis on payments. In 2020, the BAFT Board of Directors approved the payments strategy developed by BAFT’s Senior Vice President of Payments and Innovation, Samantha Pelosi, and established the Global Payments Industry Council (GPIC) as the cornerstone of that strategy. The GPIC was stood up in July 2020 with around 20 members comprised of senior management in global payments from BAFT member organizations. GPIC geographic representation includes Africa, Asia-Pacific, Europe, MENA, and North America. Congratulations and appreciation to David Kretz, Head of GTS Global Strategy and Payments at Bank of America, who was elected GPIC Chair and Jean-François Mazure, Head of Cash Clearing Services at Societe Generale, who was elected GPIC Vice-Chair.

GPIC’s primary purpose is to set BAFT’s strategic agenda regarding global payments, to raise and vet issues, initiatives, and challenges, and to ensure proper alignment of BAFT’s payments committees and working groups. GPIC’s formation is a wonderful addition to the BAFT organization. I look forward to what it will accomplish.

What will payments look like tomorrow? Certainly not “old world,” not likely “current world,” maybe a “whole new world,” or even “out-of-this-world” … and getting there will be fun.

Mark Garfield
BAFT Chair
Head of Global Financial Institutions
Zions Bancorporation

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On August 17, BAFT published its 2020 Annual Review Digest covering major activities and achievements for FY2019-2020 including advocacy issues, industry initiatives, thought leadership, educational offerings, events, membership statistics, and more.

The challenges of 2020 have led us all to quickly shift our priorities and methods of operation. Much of the value of BAFT is rooted in personal engagement in various markets. However, we managed to keep our community connected virtually and hosted 29 educational offerings ranging from in-person workshops and conferences to online training, webinars, and virtual events.

Prior to the COVID-19 pandemic, the association hosted workshops in three new countries including Côte d’Ivoire, Madagascar and South Korea; as well as traditional in-person events in Beijing, Chicago, Frankfurt, London, Mumbai, New York, Singapore, and Toronto. Since March 2020, BAFT has offered a range of virtual events, which resulted in a three-fold increase in our global event attendance.

We expanded our membership footprint and welcomed 25 new members including 17 banks and 8 solution providers; several of which represent new countries in the BAFT global community including Afghanistan, Belize, Cambodia, Djibouti, Oman, and Taiwan. With 284 members, BAFT membership now collectively represents 63 countries spread across six continents.

Our policy and subject matter experts have continued to drive forward a broad list of issues most important to our members and delivered advocacy wins covering AML Framework Reform, Correspondent Banking De-Risking, Cross-Border Payments, IBOR Transition, Reauthorization of U.S. EXIM Bank, and Supply Chain Finance Practices to name a few. Throughout the year, we continued to promote thought leadership and produced 11 white papers related to trade, innovation, payments, regulation, and transaction banking.

This past year saw BAFT launch two leadership councils to provide additional structure and guidance in member services: the Africa Council covering sub-Saharan Africa and the Global Payments Industry Council covering treasury, cash management, and payments. We also stood up new working groups to address industry issues and developments including the Buna regional payment platform, cross-border instant payments, supply chain payables finance, and RMAs.

We appreciate the continued support, engagement and commitment of our members and staff. You may view or download the 2020 BAFT Annual Review Digest here.

Please feel free to contact us at [email protected], [email protected] or [email protected] based on your inquiry.

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“When I put out the question about providing comments on this Federal Register notice, we received overwhelming support for submitting a comment letter for continuing and maintaining the partnership with PEFCO,” said BAFT’s Stacey Facter. “PEFCO allows for U.S. exporters of all sizes to better compete with foreign suppliers that are generally supported by, or even funded by, their less supportive export credit agencies.”

WASHINGTON – The Export-Import Bank of the United States (EXIM) Board of Directors today hosted a three-hour public meeting, via teleconference, to provide stakeholders the opportunity to provide comment on the Private Export Funding Corporation’s (PEFCO) recent request to renew its public-private partnership with EXIM.

Over 120 registrants participated in today’s teleconference which included presentations from EXIM and PEFCO staff, members of the PEFCO Board of Directors, as well comments from external stakeholders with diverse views on PEFCO including Veronique de Rugy, Senior Research Fellow, Mercatus Center, George Mason University; Stacey Facter, Senior Vice President, The Bankers Association for Finance and Trade (BAFT); Patrick Gang, Head of Export and Agency Finance, Bank of America; and Steve Greene, Chief Operating Officer, International Trade, American Trade and Finance Company (ATRAFIN).

Other presenters and attendees at today’s meeting included representatives from PEFCO’s Board of Directors, PEFCO staff, and EXIM staff: Richard S. Aldrich, Jr., Executive Chairman, PEFCO Board of Directors; Mary Bush, Chairman, Bush International LLC; Ben Friedman, William Joseph Maier Professor of Political Economy, Harvard University; Timothy C. Dunne, President and Chief Executive Officer, PEFCO; Gordon Hough, Senior Vice President, PEFCO; Raj Nandkumar, Senior Vice President and Treasurer, PEFCO; Jim Cruse, Senior Vice President, Office of Policy Analysis and International Relations, EXIM; Nicole Wharton, Senior Counsel, EXIM; Ken Tinsley, Senior Vice President and Chief Risk Officer, EXIM; and Lisa Terry, Senior Vice President and Chief Ethics Officer, EXIM.

“When I was sworn in as Chairman of EXIM, President Trump told me to ‘fight to give American workers a level playing field,’ ‘expand foreign markets for American-made goods,’ and ‘help create even more great paying jobs.’ As our nation focuses on re-opening the economy, EXIM has a very targeted role in supporting U.S. jobs and keeping America strong, while protecting the American taxpayer,” said EXIM President and Chairman Kimberly A. Reed.  “Today’s public meeting highlighted some very important points that Director Bachus, Director Pryor, and I will take into consideration as part of our assessment process of this 50-year EXIM-PEFCO partnership. It is important to appreciate the role PEFCO plays, and I thank all of the stakeholders for their participation and engagement.”

“EXIM’s historic relationship with PEFCO has ensured that there is liquidity in the marketplace to support small business exporters and sustain jobs in communities across the country,” said EXIM Board Member Spencer T. Bachus, III.

“EXIM is ramping up its financing for U.S. exports in the midst of the COVID-19 pandemic and lenders are increasingly requesting PEFCO’s financial support for EXIM- guaranteed transactions, including supply chain, as well as other initiatives,” said Richard S. Aldrich, Jr., Executive Chairman, PEFCO Board of Directors. “As it did in the 2008 financial crisis, PEFCO is eager to assist EXIM. However, in order for PEFCO to remain a viable business and continue its mission in support of EXIM as the supplemental lender of U.S. exports, PEFCO is requesting that the guarantee and credit agreement be renewed.”

At the public meeting, the EXIM Board heard from a variety of external stakeholders with diverse views on PEFCO’s future. Veronique de Rugy expressed her concern with renewing EXIM’s partnership with PEFCO, stating, “In light of the current economic crisis some may feel that the now is not the time to reconsider or even reform PEFCO. But not even the most pessimistic economic scenarios contemplate that the current crisis will last 25 years. Assuming that the liquidity argument holds, if the guarantee agreement between EX-IM and PEFCO is renewed again, it should be renewed for only one year, at the end of which the need for or appropriate role of PEFCO should be revisited in light of prevailing economic conditions.”

Other panelists expressed their support for a continued partnership between PEFCO and EXIM. Stacey Facter of BAFT, delivered a strong endorsement for PEFCO, recounting the positive feedback of BAFT members. “When I put out the question about providing comments on this Federal Register notice, we received overwhelming support for submitting a comment letter for continuing and maintaining the partnership with PEFCO,” Facter said. “PEFCO allows for U.S. exporters of all sizes to better compete with foreign suppliers that are generally supported by, or even funded by, their less supportive export credit agencies.”

“PEFCO makes what we do possible,” said Steve Greene of ATRAFIN. “I have been working with PEFCO for about 25 years. They are not and have not ever been has competitive with us in any way. The reality is exactly the opposite. PEFCO is what makes us competitive. PEFCO is what allows us to fill this critical gap in the market that allows the U.S. exporters to grow and compete. If PEFCO is not renewed, U.S. exporters will lose business to their foreign competition.”

On July 27, 2020, EXIM Chairman Reed announced the agency’s first-ever public review of PEFCO. As part of the review, EXIM invited public comment on two separate requests the agency has received from PEFCO. The first request relates to renewing PEFCO’s partnership with EXIM, which is set to expire on December 31, 2020. The second request relates to increasing the amount of the long-term general guarantee on the interest of Secured Notes issued by PEFCO. The two requests were published in the Federal Register and comments must be submitted on or before August 21, 2020, to be assured consideration by the EXIM Board of Directors.

PEFCO was created in 1970 with the assistance of EXIM to finance U.S. exports by complementing the financing available from commercial banks and other lenders. PEFCO provides a broad range of export finance programs as a direct lender and as a secondary market buyer of export loans originated by other lenders. To be eligible for financing by PEFCO, loans must be protected against nonpayment under an appropriate guarantee issued by EXIM.

PEFCO entered into an official 25-year partnership with EXIM in 1971, which was renewed in 1994 for another 25-year period through December 31, 2020. The partnership was established with the support of EXIM and the broader U.S. government to mobilize private capital for the funding of EXIM guarantees and/or insurance authorized in support of U.S. exports to complement and fill gaps in funding available from commercial sources. PEFCO accomplishes these purposes by intermediating between the efficiency and immense scale of the U.S. capital markets and the day-to-day funding needs of export financing for cases ranging from several hundred thousand dollars to several million dollars.

About EXIM:
EXIM is an independent federal agency that promotes and supports American jobs by providing competitive and necessary export credit to support sales of U.S. goods and services to international buyers. A robust EXIM can level the global playing field for U.S. exporters when they compete against foreign companies that receive support from their governments. EXIM also contributes to U.S. economic growth by helping to create and sustain hundreds of thousands of jobs in exporting businesses and their supply chains across the United States. In recent years, approximately 90 percent of the total number of the agency’s authorizations has directly supported small businesses. Since 1992, EXIM has generated more than $9 billion for the U.S. Treasury for repayment of U.S. debt.

For more information about EXIM, please visit www.exim.gov

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On August 12, BAFT responded to EXIM’s Federal Register Notice sharing the strategic importance of the EXIM partnership with PEFCO.

BAFT has long supported EXIM’s operations and recognizes the longstanding and strategic importance of its 50-year partnership with PEFCO. As the EXIM Board reviews the PEFCO agreement due to expire at the end of the calendar year, BAFT filed comments calling on EXIM to renew its partnership with PEFCO.

At a time of increasing global competition, EXIM’s partnership with PEFCO takes on greater significance. The availability of PEFCO support helps U.S. exporters counter the competitive advantages to foreign competitors. PEFCO provides attractive and competitive fixed and floating USD funding alternatives that complement banks’ suite of funding solutions and is a valuable component of the broader industry supporting U.S. exporters.

PEFCO is a successful public private partnership that decreases EXIM’s reliance on taxpayer-provided funding (direct loans). PEFCO does not compete with commercial banks as it has no origination capability. Rather, PEFCO plays an important role to “crowd-in” transactions or syndications that might constrain lenders’ balance sheets, helping exporters compete for important sales.

PEFCO’s funding capacity may be increasingly helpful in light of bank balance sheet limitations that may arise in an evolving regulatory environment, with growing counterparty and country constraints. Considering the liquidity- and credit-challenged COVID-19 environment, the EXIM-PEFCO partnership becomes even more important to navigate the credit cycle ahead.

On August 13, Stacey Facter, Senior Vice President, Trade Products will participate in an open meeting of the EXIM Board to share BAFT member priorities.

To view the comment letter, visit our Library of Documents under the Comment Letters section.