Trade

Banking in an uncertain world: How geopolitics and technology are rewiring transactional finance

Via Trade Finance Global by Doga Usanmaz

  • Geopolitical tensions and shifting trade corridors are requiring banks to adapt to political risks and regional economic changes.
  • Europe’s focus on financial sovereignty is driving strategic investment into sectors like energy and defense.
  • Regarding digitalisation, challenges remain in balancing technological innovation with social impacts, particularly in developing regions

Rerouted trade corridors, regional fragmentation, a currency arms race… these are no longer distant possibilities. They are active geopolitical and macroeconomic forces, reshaping transactional banking. 

At this year’s BAFT Global Council’s Forum in Frankfurt, Germany, a panel of senior leaders from prominent global and regional banks explored how shifting political tensions and economic dynamics are creating deep uncertainty for the industry, and how banks are adapting their strategies, infrastructure, and client relations in response.

The panel, moderated by Nick Smit, head of financial institutions at ING Bank and chair of BAFT’s board, found that transactional banks are being rewired to confront political risk, digitisation, and technological disruption. The panel provided a region-by-region exploration of the subject, and some interesting parallels came up.

Read the full article here.

Industry groups caution against fragmented rollout of the EU’s CRD6

Via Global Trade Review by Jenny Messenger

Baft (Bankers Association for Finance and Trade) and other industry bodies have urged EU member states to be consistent in implementing the Capital Requirements Directive (CRD) 6 to avoid disrupting cross-border financial services.

CRD6 is the latest iteration of the directive that requires banks and investment companies to put aside capital as insulation against financial shocks, and will ensure EU firms are aligned with outstanding aspects of Basel 3.

Previously, banks headquartered in non-EU countries could provide services like loans and guarantees in the EU without a physical presence by relying on cross-border waivers.

But changes under the regulation will bring in the branch requirement, meaning that third-country banks and large investment firms must operate through locally licensed branches, unless an exemption applies.

The European Commission published CRD6 in June 2024, and the directive must be transposed into the national law of each EU member state by 10 January 2026. The branch requirement will enter into force from 11 January 2027.

Yet some countries’ proposed legislation differs from the CRD6 text in “several significant areas relating to the branch requirement” and the activities that are exempt from it, the industry groups say.

Alongside Baft, the position paper is supported by UK Finance, the Bank Policy Institute, the Swiss Finance Council, the Loan Market Association, the Association of Foreign Banks and the Japanese Bankers Association.

“A national transposition of the branch requirement that omits or unduly narrows these exemptions and carve-outs is not aligned with the intended scope” and would “introduce uncertainty and unnecessary risk to the stability of the local banking market”, the paper says.

The exemption covers core banking activities that involve inter-bank business, intragroup business or reverse-solicited business – where a client contacts a firm first.

It also applies to core banking services, including ancillary services like taking deposits or granting loans, related to the Markets in Financial Instruments Directive (Mifid).

“We would advocate that all member states ensure that they faithfully transpose the branch requirement in this regard, ensuring that core banking services connected with Mifid services are exempt,” the paper says.

The branch requirement also does not apply to existing contracts entered into before 11 July 2026.

Custody services, which enable corporates and institutional investors to hold international assets and settle cross-border transactions, could be particularly at risk if member states’ legislation is imprecise.

“Lending by custodians is an intrinsic part of transaction settlement and, therefore, integral to the smooth functioning of capital markets,” the paper notes.

Other consequences of a fragmented system could be interruptions in banking services for EU clients, higher costs for service recipients and fragmentation of liquidity pools.

There is also the risk that European recipients of third-country core banking services could move out of jurisdictions with reduced flexibility, the paper adds.

In response, the industry groups have recommended that ambiguities over the exemptions be clarified.

For example, they argue the follow-on right in reverse solicitation – which covers products or services that are closely related to those initially requested by the client – should be explicitly referenced.

The associations’ position paper includes sample text to make sure member states harmonise the regulation of cross-border banking services and avoid “gold-plating” the legislation.

Uncertainty over CRD6 is the latest challenge arising in the EU’s implementation of the Basel framework.

Banks last year were spared what they said was a potentially significant blow to trade finance when the EU decided not to implement parts of the framework that would have more than doubled capital treatment for off-balance sheet trade finance instruments.

PODCAST | Tariffs, inside and out

To explain the impact tariffs have on global trade and the strain they cause on banks, Trade Finance Global (TFG) spoke with Craig Weeks, Senior Vice President of BAFT.

Via Trade Finance Global by Craig Weeks

Since US President Donald Trump came to office in January 2025, not a day goes by without some mention of ‘tariffs’ in the news. International markets have reacted to landmark shifts initiated by US President Donald Trump’s new tariff policies. Tariffs have evolved from a more specialised economic tool to one gaining political and ideological ramifications, generating renewed and expanded interest in them.

At the 51st Annual International Trade and Forfaiting Association’s (ITFA) Conference in Singapore, Mahika Ravi Shankar, Deputy Editor at Trade Finance Global (TFG), sat down with Craig Weeks, Senior Vice President for Trade at BAFT (Bankers Association for Finance and Trade), to discuss the impact of tariffs from a banking and trade finance perspective. 

What are tariffs?

Tariffs have historically had two essential uses: raising revenue for the government or protecting domestic industries by making foreign goods more expensive. Tariffs can be imposed on imports or exports. 

There are three main types of tariffs: 

  • Ad Valorem tariffs are added as a fixed percentage of the total value of the imported product. 
  • Specific tariffs are a fixed monetary charge added to each unit, such as a kilogram, a ton, or a pair, which operates regardless of the total value of the product. 
  • The last type, compound tariffs, is a hybrid of the two. 

Tariffs differ in aim and impact from other trade barriers such as quotas and sanctions.

Quotas are a tool to cap foreign competition by limiting “the quantity of a product that can be imported or exported during a certain period, ” Craig Weeks explained. Restricting the total number of goods from one or several countries drives up the cost of that import, making domestic products more attractive. 

Quotas serve an economic purpose for governments. By comparison, sanctions, another form of trade barriers, are often used as political and ideological tools.

“Sanctions are broader restrictions and sometimes total bans on trade with a specific country, company, or individual”, explained Weeks. “People use sanctions to pressure governments to punish bad behaviour or to restrict access.”

Breaking down the differences, Weeks said: “Tariffs impact the cost, quotas restrict the quantity, and sanctions restrict who.”

Impact on trade finance and financial institutions 

This year, financial institutions involved in trade finance have been heavily impacted by US tariff developments in several ways. 

Firstly, tariffs on key inputs increase invoice values, necessitating increased working capital and larger credit value facilities, including credit lines, letters of credit, and pre-export or import loans. This increases “the overall value of supply chain finance programmes”, explained Weeks.

Secondly, tariffs cause increased credit risk, a side effect of larger sources of credit requirement, and borrowers either try to absorb tariffs, or if unable to, pass them on, reducing the banks’ margins. Some contracts now also include a Material Adverse Changes (MAC) clause, allowing a party to exit or renegotiate an agreement if a significant adverse event increases volatility. 

Thirdly, compliance risks have increased due to “the need to interpret the intent of trans-shipment and alternate supplies, which raises the risks of misdeclarations and misunderstood rules of origin”, explained Weeks. 

Fourthly, increased operations risk due to heightened documentation checking and compliance requirements and unclear mitigating protocols. “This is new territory for a lot of banks”, said Weeks, which can increase operations risk as banks are “feeling their way”.

And fifth, insurance premiums have increased, which hikes up the overall cost of business. 

Impact on SMEs

Tariffs have exacerbated the trade finance gap, particularly for small and medium-sized enterprises (SMEs) in emerging economies. Increased working capital demands, to fund the same-sized shipments, are more challenging to finance for less capitalised, smaller banks that cannot proportionally expand credit facilities. 

“It becomes a vicious cycle”, Weeks said, as “increased uncertainty about supply chains (causes) banks respond with stricter credit terms, higher collateral requirements, shorter tenors, and tighter covenants.”

“This negatively impacts SMEs disproportionately as they are the least able to pass along the tariff impact onto their client”, he added.

In the US, big box stores have been more able to absorb the impacts of tariffs than smaller suppliers, forcing smaller companies out of business, who had no choice but to pass on increases to clients.

US tariffs have already significantly impacted SMEs globally. For instance, by the end of March this year, following the announcement of President Trump’s tariffs, two South Korean automotive suppliers had declared bankruptcy despite reporting high turnovers. Notably, both filed for bankruptcy before Trump’s 25% tariffs were due to take effect on 2 April.

South Korea’s example opens a broader issue of the impact of the anticipation of tariffs. On 8 August, the US and China announced that they had agreed to a 90-day extension on their tariff break, the third similar extension this year. However, despite the delayed and postponed impact of many of Donald Trump’s tariffs, financial institutions acted to prepare and reacted to uncertainties.

“They’ll front-load inventory purchases or shipments, getting it now before the tariff takes effect, making advanced payments, reducing tenors, accelerating discounting”, said Weeks. Front-loading refers to bulk ordering before tariffs take place, before prices increase.

Tariffs have also caused a transition away from letters of credit (LCs), which have grown increasingly expensive under the added complexities caused by Trump’s tariffs, towards other forms such as documentary collections or open accounts, both of which now have broadly lower associated costs.

Perhaps the most aggressive form of tariff anticipation responses has been proactive derisking, which Weeks explained involves “moving your suppliers to other countries or changing your customer base from one country to another to get out from under this uncertainty”.

Trade wars and retaliatory tariffs

One of the most significant problems caused by Donald Trump’s tariffs is increased market uncertainty. Buyers and sellers are left unclear on what to buy, what to sell, how much to buy, how much to sell, and when to buy. 

The uncertainty in the market reduces global market efficiency, complicating the decision-making matrix behind transactions. Commenting on the additional risks that trade wars can pose, Weeks said: “Trade wars inject cost, uncertainty, and compliance complexity into supply chains. The risks and effects cascade exponentially onto SMEs.”

Tariffs: What’s next?

This year has seen a political demonstration of new and old economic alignments between nations. China, in particular, has taken centre stage, positioning itself as the source of global financial stability in the face of US uncertainty. China signed several huge deals this week, indicating an economic alignment and desire to reduce uncertainties. 

On Friday, Pakistan signed a £6.29 billion new investment agreement with China and unveiled the next phase of the China-Pakistan Economic Corridor. Russia and Beijing agreed to build the Power of Siberia 2, a natural gas pipeline between the two countries, bringing 50 billion cubic metres of gas to China every year, doubling the 38 billion cubic metres capacity of the current Power of Siberia pipeline.

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Weeks explained that tariffs have caused “countries to completely rethink their strategic alignment when it comes to who their economic friends are”. He added that a side effect of uncertainty is that companies and countries had stopped dealing in terms of strategy “for the next year”, but now were broadly discussing “tactics for dealing with the next two weeks”.

But they are something we have to start getting used to. Governments are growing increasingly accustomed to the revenue tariffs generated, meaning we will unlikely see a sharp decline in tariff rates soon.

“​​Tariffs go up by the elevator and they come down by the stairs very, very slowly”, summarised Weeks.

5 Takeaways from the BAFT Global Annual Meeting 2025: The tug-of-war Between Localisation and Collaboration

Via Trade Finance Global by Glee Baniago

Navigating the trade finance landscape, with constant dodgeballs in the form of geopolitical tensions, regulatory requirements, and threatening technology, requires considerable agility. But this year’s BAFT Global Annual Meeting, in Washington, DC, revealed the considerable opportunity in times of turbulence.

These takeaways are drawn from the following sessions: 

  • ‘Beyond Buzzwords: Supporting a Fair and Inclusive Workplace’, featuring Shannon Manders, Editorial Director, GTR (moderator); Leigh Amaro, Head of North America, Swift; Priya Raghavan, Managing Director and Head, US & Canada Financial Institutions, BBVA; James Rausch, Managing Director, Head, Global Transaction Banking, Royal Bank of Canada; and Nick Smit, Head, Financial Institutions Americas, ING
  • ‘AI: Leading the Way in the Future of Finance’, featuring Manuela Veloso, Head of AI Research, JPMorgan; and Mike Katergaris, Head of North America Financial Institution Sales, JPMorgan
  • ‘Meaningful Collaboration for Enhancing the Client Experience in Supply Chain Finance (SCF)’, featuring Wouter Hazenberg, Managing Director – Head of VCF Supplier Finance North America, Rabobank; and Flav Pop, Director, Financial Partnerships, PrimeRevenue

1. Banks and fintechs are choosing collaboration over competition

The traditional rivalry between established banks and fintech disruptors is giving way to partnerships which leverage each other’s strengths; banks can typically provide deep client relationships and multi-currency funding capabilities, whilst fintechs handle complex supplier onboarding and electronic time drafts.

This shift reflects mounting client expectations for real-time analytics, automated payment execution, and comprehensive supply chain visibility, a demand so large it is impossible to solve alone. The approach is proving commercially successful: joint responses to client RFIs are becoming commonplace, with customers explicitly requesting collaborative solutions that neither party could deliver independently.

2. Geopolitical tensions are accelerating supply chain localisation

Samarium is a rare-earth metal used in military-grade magnets, and its supply is entirely controlled by China. This should serve as an emblem of the wider inefficiencies in the geopolitical ecosystem, where skyrocketing tariffs (from the US and in response) are forcing companies to rethink global dependencies.

The rhetoric around this is largely politicised. Returning to Samarium, the magnets which it produces are critical components in missiles, smart bombs, and fighter jets, making it clear that whoever controls such resources has a large stake in military capabilities and strategy. 

But rethinking has created new opportunities for trade finance providers. The renewable energy sector and the data centre supply chain particularly illustrate this shift. The rapid expansion of the data centre sector has led to streamlined procurement and modular construction, but has also exposed an over-reliance on a small pool of suppliers, contractors, and standardised components. As such, massive data centre projects exceeding two gigawatts require localised supply chains to ensure resilience. Tesla’s ‘Gigafactory Nevada’ battery facilities and in-house lithium refining operations represent the future that many corporates are moving towards.

3. Gender diversity in trade finance remains stubbornly poor despite business benefits

In GTR’s first comprehensive gender diversity survey, 47% of respondents reported women hold just 0-5% of C-suite positions in trade finance organisations; 45% of employees don’t know whether their organisation has gender pay parity policies, suggesting fundamental communication failures around diversity initiatives.

There’s a business case for inclusion which extends beyond the ethical one. McKinsey data shows that companies prioritising diversity achieve a 39% greater likelihood of outperforming peers on profitability. Yet the sector appears to have embraced technological partnerships more readily than workplace inclusion. As the industry transforms through artificial intelligence (AI) and embedded finance, diverse perspectives will become increasingly valuable.

4. Human-AI collaboration is essential, but scale demands AI-to-AI verification

The integration of AI across trade finance operations is moving beyond experimental phases into practical applications. Fintech providers are leading this adoption, using AI to optimise supplier onboarding programmes and enhance real-time analytics capabilities that clients increasingly demand.

Deep-tier supplier finance – extending credit down the supply chain to suppliers’ suppliers – exemplifies AI’s potential impact. While still in its infancy, this approach can unlock significant value by financing entities that might otherwise pay 6-7% interest rates. As AI capabilities mature and processes become increasingly automated, industry leaders predict this will enable financing of entire value chains more efficiently, making supply networks more resilient while reducing overall borrowing costs.

While banks have traditionally focused on data analysis and pattern recognition, AI agents can understand policies, execute rules, and take actions based on business knowledge, and could present a space to watch in the future. This could render the ‘human in the loop’ approach redundant when dealing with systems that can process hundreds of sources: ‘AI checking AI’ could be implemented, with humans performing random spot checks to build trust over time. 

This approach mirrors how we learned to trust GPS navigation systems like Waze. Banks need to develop systematic verification processes where different AI models cross-reference results, and humans validate randomly selected outputs to maintain quality control while leveraging AI’s scale advantages.

Whether agentic AI or otherwise, the competitive consequences of avoiding AI adoption could be fatal, all the while maintaining data security and regulatory compliance.

5. Accounting transparency requirements are unexpectedly boosting market adoption

The introduction of IFRS and FASB disclosure requirements for supplier finance programmes initially sparked industry concern about potential market contraction. Rating agencies like S&P began scrutinising programmes more closely, with blanket rules such as treating anything over 90 days as debt regardless of industry context.

However, the opposite effect has materialised. Increased transparency has actually attracted new corporates to consider supplier finance: the global supply chain finance market is projected to grow at a compound annual growth rate of 8.8% from 2022 (the year the new standards took effect) to 2031.

While some programmes with excessive payment terms or disproportionate balance sheet dependency have scaled back, the clearer regulatory framework has provided confidence for new entrants. Industry participants now argue for more nuanced rating agency approaches that consider sector-specific norms, recognising that 30-day terms suit perishable goods like dairy, whilst 360-day terms may be appropriate for capital equipment like wind turbines.

BAFT Releases Third White Paper in ISO 20022 Series Focused on Lessons Learned in Sanctions and Compliance

Washington, D.C. – BAFT, the leading global industry association for international transaction banking, has published a new white paper titled “ISO 20022 Migrations: Lessons Learned in Sanctions & Compliance.” This latest publication is part of BAFT’s ongoing efforts to support the financial industry in navigating the complex landscape of global payment modernization and regulatory compliance.

The white paper captures practical insights from early adopters of ISO 20022, specifically focusing on the challenges and strategies related to sanctions screening and financial crime compliance. As financial institutions transition to richer data formats and structured messaging, the paper highlights both the operational and regulatory implications, and provides actionable recommendations for compliance professionals and technology teams.

“ISO 20022 has introduced new dimensions to data quality, transparency, and risk management,” said Deepa Sinha, senior vice president of payments & financial crimes, BAFT. “This white paper addresses a critical area—how the migration impacts sanctions and compliance operations—and offers lessons that can benefit banks still undergoing or preparing for the transition.”

Key themes explored in the white paper include data truncation and translation issues, evolving regulatory expectations, technology enablement, and the need for cross-functional collaboration between compliance, operations, and IT. The white paper is available to BAFT members and the broader industry community on the BAFT website.

Click here to read BAFT’s ISO 20022 Migrations: Best Practices & Guidance. The white paper is also available within BAFT’s Library of Documents under the Guidance and Industry Practices section.

About BAFT

BAFT, the leading global financial services association for international transaction banking, helps bridge solutions across financial institutions, service providers and the regulatory community that promote sound financial practices enabling innovation, efficiency, and commercial growth. BAFT engages on a wide range of topics affecting transaction banking, including trade finance, payments, and compliance.

BAFT Media Contact:
Blair Bernstein
Senior Director, Public Relations
[email protected]
+1 (202) 663-5468

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VIDEO | BAFT’s Strategic Independence in an Era of Geopolitical Complexity

Via Trade Finance Global by Tod Burwell, Mahika Ravi Shankar, and Suresh Subramanian

Try to conceptualise the financial landscape of 1921. In the direct aftermath of the First World War, many European economies were burdened by war debts and reparations, particularly Germany under the Treaty of Versailles; the US emerged as the world’s leading creditor nation, shifting the financial centre of gravity from London to New York; global trade and investment were disrupted; and the gold standard, though still influential, was under strain as countries struggled to stabilise their currencies.

Also in 1921, the Bankers’ Association for Finance and Trade (BAFT) was established, uniting 10 banks in midwestern US to expedite business transactions of their international trade customers.

After more than two decades under the American Bankers Association (ABA) umbrella, the Bankers’ Association for Finance and Trade (BAFT) is charting a new course as an independent organisation. The separation, effective September 2025, will be in response to an increasingly fragmented global financial landscape.

“When we started talking about this separation, some maybe 30 months ago, we looked at it from a theoretical construct. The events of today tell us how right we were,” explained Suresh Subramanian, outgoing BAFT Chair, in the opening remarks of the BAFT 2025 Global Annual Meeting in Washington, DC. With 70% of BAFT’s membership coming from international institutions, the need for geopolitical neutrality has become paramount.

Neutrality in a polarised world

The challenge was clear: how can an organisation truly serve global banking interests while remaining a subsidiary of an association chartered specifically for US banks? The ABA, by design, focuses on US-chartered institutions. For BAFT to maintain credibility as a neutral voice in international trade finance, independence became not just desirable but essential.

BAFT is expanding its engagement beyond traditional boundaries, recently electing its first Americas Council co-chair from Mexico’s Banorte—the first time this position has been held by someone outside the US or Canada. These partnerships mirror broader industry trends toward collaboration in an increasingly complex environment. Just as Swift works with banking associations worldwide to navigate regulatory frameworks while maintaining global connectivity, BAFT is positioning itself to serve as an independent bridge between diverse financial jurisdictions. Local partnerships will enable BAFT to provide more relevant, jurisdiction-specific support while maintaining its global perspective.

Managing transition risks

The separation won’t be without challenges. Moving from the infrastructure support of a large, well-funded parent organisation requires significant operational restructuring. All HR, finance, IT, and customer systems must be migrated to new platforms—a complex undertaking that could disrupt member services if not executed flawlessly.

The re-onboarding requirements that many member organisations will face represent perhaps the biggest immediate challenge. As banking institutions implement increasingly stringent vendor management processes, BAFT’s change in legal structure may trigger lengthy approval procedures, so the organisation is actively working with members to streamline this process, emphasising continuity despite structural changes.

As Tod Burwell, President and CEO of BAFT and Trade Finance Global (TFG) Editorial Board Member, emphasised, operational continuity in the transition will be important.

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BAFT’s upcoming independence reflects broader themes reshaping international finance: as geopolitical tensions intensify and regulatory frameworks diverge, financial organisations must balance global reach with local relevance. The ability to maintain neutrality while serving diverse stakeholders becomes increasingly rare and thereby increasingly valuable.

Strategic independence doesn’t mean isolation—it means having the flexibility to build the partnerships that best serve members’ evolving needs, and also stands as an experiment in organisational agility.

The separation from ABA was conducted on amicable terms, with expectations of continued collaboration where beneficial.