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From Pandemic to Innovation – The New Processing Model in Trade Finance Operations & Compliance

Trade Finance Compliance Blog
By Colin Camp

As countries and banks around the world start the process of getting back to normal operations, one thing that this terrible experience has shown to us is that it is no longer needed, safe, or viable to have large teams of people working closely together in one office at the same location.

 

The drive to digitisation has become more vital and urgent, which should be lauded.  We have been on the digitisation journey for some years, and there are areas of the banks operations which are now fully digitised. However, to a certain extent this journey has always stopped at the door of Trade Finance and specifically Trade Finance Operations and Compliance.

The manual nature of this process, caused because of the abundance of paper-based documentation, has long been accepted as a necessary evil, despite being a strain on the profitability of the business.  Trying to do cross-border trading activity is being hindered in moving goods from one location to another, due to the inability of the players in the supply chain, including banks, to transmit and process the necessary paper documents.

This has rightly caused a demand for the process to be reformed and laws in various countries that require paper-based trade documentation to be amended.  Recently the ICC published their “guidance paper on the impact of COVID-19 on trade finance transactions issued subject to ICC rules”, proposing (amongst other suggestions) that banks should have the ability to process transactions using faxed, scanned, or emailed images of documents.

So, the digitisation movement for trade finance is taking a huge step forward. However, as can be applied to the emergence of blockchain platforms across the globe, these changes are not going to happen overnight.  Like it or not, paper-based documents will be with us for the near future.

So, what do banks do when their Trade Finance volumes start to pick up as Global trade increases.

How do you run an operation which is reliant on a manual workforce when the workforce is not operating at 100% capacity, due to working from home?  In addition, how do you safeguard your business if there are subsequent lockdowns, or other events causing significant impact to your business?

Necessity is the mother of invention:  Necessity forces us to think differently; to make things better, faster and sometimes cheaper.  Trade Finance processing and compliance needs innovation, nothing much has changed in the paperwork and process of trade since the fountain pen replaced the goose feather and the money launderers are aware of this.  That is why hundreds of millions of $ of laundered money goes through trade transactions.

Now is the time to look at innovating.  Current practices within Trade Finance Operations and Compliance need to change.  New technologies such as AI offer amazing benefits by automating the burdensome manual operational and compliance processes of today.  These innovations are led by Natural language Processing coupled with smart OCR, where data is extracted from free text and translated into readable defined fields which can be searched, verified, validated, and analysed.

These technologies deployed in conjunction with Machine Learning now give the possibility to completely automate your trade compliance department. The ability to automatically screen and filter for sanctions, embargos, and dual-use-goods as well as monitor Trade-based Money Laundering and Trade Based Terrorist Financing red-flags is available today and provides the highest alert accuracy and dramatically reduces false positives ensuring that a simple ROI is achieved.

Solutions such as Pelican’s Trade Finance automation and compliance tool, Pelican Secure Trade, allow banks to operate on significantly lower workforce numbers, process significantly more transactions, and more importantly in these days, allow remote operations and investigations of any alerts created.

With the current market turmoil, can banks avoid the need to innovate for now and the future by not adopting new technology?