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Five topics that shaped trade finance in 2022

With a weakening economic outlook and geopolitical instability rattling the world’s supply chains and trading relationships, 2022 was a challenging time for trade and trade finance. Here we have rounded up our most popular articles over the past 12 months, which reflect the progress made – and the obstacles faced – during this time.

Having tracked the total views of all GTR news pages since January 1, we can reveal the most popular topics among the trade community this year: the devastating impacts of Russia’s war in Ukraine; the demise of several digital platforms for trade and growing consolidation in the space; sprawling court cases over reticent insurers and alleged fraud by traders; the mounting pressure on the industry to divest from fossil fuels and curb greenhouse gas emissions; and fierce lobbying to avert capital requirements regulatory changes in Europe.

 

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Counting the costs of the Ukraine crisis

The invasion of Ukraine by Russia dominated global headlines this year. Beyond the immediate disastrous humanitarian consequences, its wider impacts have rippled across the globe, contributing to soaring prices for grain, fertiliser and other agricultural goods as well as the threat of an energy crisis in Europe.

The attack in February was swiftly met with the introduction of sanctions from governments in the US, Europe and Asia. Over the course of the year, restrictions have been introduced on transactions involving Russian financial institutions, as well as the trade of Russian-origin goods including oil, gas and metals. The World Trade Organization was quick to downgrade its outlook for global trade growth in light of the conflict.

European entities with Russian ties were forced to confront the new reality. In April, Amsterdam Trade Bank filed for bankruptcy as a result of restrictions placed on its parent company Alfa Bank. In September, Sberbank completed the sale of its Swiss subsidiary, resulting in the creation of a Ukraine-focused trade finance lender TradeXBank. In some cases, the sudden introduction of sanctions led to legal disputes between companies caught in the crossfire, for example in situations where payment under a letter of credit was no longer allowed.

The following months saw the emergence of strategies aimed at curbing runaway price inflation and avoiding food and energy shortages, while still depriving the Kremlin of funding for its war effort. The Black Sea Grain Initiative has not been entirely plain sailing, but has facilitated the safe seaborne trade of millions of tonnes of wheat, corn and sunflower products from Ukrainian ports, and has been hailed for stabilising food prices and tackling food insecurity.

In the energy market, an oil price cap introduced by the G7, European Union and Australia allows companies to provide shipping, insurance and trade finance in support of Russian oil exports as long as the price remains below US$60 a barrel. Whether traders, insurers and – in particular – banks will view such trade as within their risk appetites remains uncertain.

Germany, Europe’s largest importer of Russian gas, has started to turn to other sourcing markets, not least since September’s apparent sabotage of the two Nord Stream gas pipelines between the two nations. It has since reached an LNG purchase agreement with Qatar and provided export credit agency backing to a US$3bn four-year loan, allowing Trafigura to deliver “substantial volumes” of gas into the European grid.

 

The state looms large

While sanctions were the primary regulatory factor keeping trade finance compliance professionals busy, governments and oversight bodies also stepped in to other areas of the sector.

Banks and large corporates were stirred into action early in 2022 to try to fend off the EU’s planned implementation of Basel IV standards on capital requirements and risk. The European Commission’s proposal to hike mandatory capital provisions for common trade finance instruments such as letters of credit, guarantees and performance bonds sparked fierce lobbying on the continent, which ultimately bore fruit when member states came out in opposition to the mooted changes.

Such advocacy looks set to be replicated in the UK, where the Prudential Regulation Authority has revealed similar planned capital requirement reforms – which the International Trade and Forfaiting Association warned would likely prompt banks to curtail trade finance product offerings.

While not strictly regulatory, the two bodies that oversee the most common varieties of accounting standards also firmed up their work on disclosure of supply chain finance usage by companies with programmes in place. While industry insiders welcome greater transparency – which had largely been demanded by investors – there were detailed arguments over how granular disclosure should be. With both sets of rules now largely finalised, 2023 looks set to be the year their impact plays out.

Action by law enforcement authorities was another popular topic within GTR’s news coverage, with Glencore subject to global fines for bribery and former executives of a UK steel company on trial for allegedly defrauding banks. With enforcement bodies looking to enforce sanctions on Russia, and a UK Serious Fraud Office investigation into collapsed lender Greensill and Sanjeev Gupta’s GFG Alliance rumbling on, there could be further drama ahead.

 

The trials and tribulations of trade digitisation

Despite the overwhelmingly clear business case for dragging the paper-heavy world of trade into the 21st century, the success of the numerous digital solutions that have emerged in recent years is far from a certainty.

2022 was the year in which the hype around blockchain – hitherto lauded as the panacea for almost all of trade’s ills – began to fade. In June, GTR broke the news that MonetaGo, a fintech company that provides digital fraud prevention solutions, had ditched the technology in favour of cloud computing, citing scalability and cost issues.

This came on the heels of the news that we.trade, a blockchain-based platform for open account trade, had closed its doors after being unable to secure further investment to continue as a going concern. The company said it had been “unable to reach an agreement with its joint venture shareholders” and was therefore “forced to discontinue” its activities.

HSBC’s Serai was next on the chopping block. Originally launched in 2019 as part of the bank’s multi-billion-dollar technology investment plan, the online business-to-business platform for SME trade saw its journey end in June after it, too, failed to make money.

The fintech bonfire continued in November, with AP Moller-Maersk and IBM scrapping TradeLens, a supply chain ecosystem that facilitated information exchange for more than 65% of containerised trade.

But it wasn’t all doom and gloom for trade digitisation. Legal reforms to give electronic documents the same standing as their paper counterparts gathered pace in 2022, and GTR’s coverage of the drafting and introduction of the UK’s Electronic Trade Documents Bill generated plenty of interest among our readers, as did a similar initiative in France and a report from the Commonwealth Secretariat finding that policies to facilitate digital trade and support electronic records could unleash a further US$1.1tn of exports by 2026.

Reasons for optimism also came in the form of merger and acquisition activity, with SAP’s purchase of a majority stake in working capital technology provider Taulia, and the buyouts of electronic bill of lading providers Bolero and essDocs by Wisetech Global and Intercontinental Exchange respectively.

 

ESG activity surges

Pressure on banks, insurers and corporates to stop backing oil, gas and coal projects intensified this year as activist groups pushed for an end to fossil fuel financing. In February, Swiss insurer Helvetia ruled out involvement in the Adani Group’s Carmichael coal mine project following a campaign run by non-profit Market Forces, and in October Munich Re announced it was significantly cutting back its support for oil and gas in the wake of criticism from human rights organisations.

Trade’s role in perpetuating climate change was also scrutinised, with a report released in June by Coriolis Technologies and the Greens/European Free Alliance in the European Parliament finding that four-fifths of global trade is unsustainable when measured against the UN’s sustainable development goals. Meanwhile, in September the International Chamber of Commerce highlighted the integral part played by trade in contributing to the SDGs, unveiling the pilot of its industry framework for assessing the sustainability of trade transactions during the Cop27 climate summit in November.

The year saw the launch of several ESG-linked trade facilities – HSBC arranged its first Hong Kong-based sustainability-linked trade facility at the start of 2022 to support multinational garment manufacturer Epic Group, and in July established a sustainable supply chain finance programme with US clothing company PVH Corp. In March Swedish electric car maker Polestar Performance closed a €350mn green trade finance facility, with Standard Chartered as the structuring bank, and in April Citi rolled out a sustainable trade and working capital loans solution.

The goal to end public financing for fossil fuel projects by the end of 2022 – a pledge made by several countries at Cop26 in 2021 – continued to gather momentum, with Canada and New Zealand mapping out specific plans. A coalition of European governments, however, released watered-down aims to collectively end export credit agency (ECA) support for greenhouse gas-emitting energy. Individually, ECAs announced backing for a range of green projects: UK Export Finance agreed a £400mn sustainability-linked facility to support the development of hydrogen technology and became the first ECA to allow the deferral of debt repayments in the event of a climate-related disaster, while Dutch ECA Atradius ESB backed a loan to help build a green ammonia and hydrogen production facility in Morocco.

Efforts to improve transparency in supply chain reporting stepped up, too. Coriolis launched the first automated, standardised tool for measuring and monitoring ESG activity, while Taulia partnered with rating provider EcoVadis to offer ESG ratings for the fintech’s supply chain finance offering.

 

Courtroom drama

2022 was a blockbuster year for trade finance litigation, largely thanks to disputes stemming from the collapse of scandal-hit traders in Asia and the Middle East during the early stages of the coronavirus pandemic.

Big names in trade and commodities finance such as Standard Chartered, Crédit Agricole, UBS and UniCredit waged legal battles on both sides of courtrooms in an attempt to claw back or shift losses from trade finance facilities that turned sour.

Accusations of fraud were slung with abandon, although they didn’t always stick. In London the financial services division of trader ED&F Man won an eye-watering US$282mn judgement against Singapore trader Straits (which is being appealed) for its alleged knowledge of warehouse receipt fraud by counterparties.

But judges in Singapore rejected a similar case made by Crédit Agricole against Japan’s PPT Energy over its purported knowledge of ZenRock’s alleged fleecing of banks (also subject to an appeal), and a suit by UniCredit accusing Glencore of fraud and deception for a trade conducted with Hin Leong in which the bank lost US$37mn.

Many of the disputes took the form of misdelivery claims by lenders against shipowners. While generally these are hard for ship owners to defend, the likes of Standard Chartered and UniCredit have come up against judges who felt otherwise, with potential ramifications for long-term legal strategies.

The fallout from the demise of commodities traders was also acutely felt in the insurance market, where providers have come under legal fire for refusing to honour policies that the insureds thought would protect them from such defaults. While one financier was successful in its case against the Bond and Credit Company, a raft of cases in Sydney and Dubai against that insurer and others are at much earlier stages, with each development closely watched.

Litigation also emerged in other areas, including a fight over JP Morgan’s refusal to pay out a letter of credit over sanctions violations fears and an argument between a trade finance asset manager and an Italian bank over securitised receivables that crumbled in value.

 

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