April 2019

flow explains how the new update to the Wolfsberg Principles has provided greater clarity on client due diligence and risk-based checks in open account trade and bank to bank trade loans

Further to Deutsche Bank’s report (Wider reach) from Christian Hausherr in August 2018 on how the joint ICC/BAFT/Wolfsberg Trade Finance Principles Drafting Group had been redrafting and updating them in alignment with industry needs, a new release was announced on 27 March 2019 covering two new appendices on FI Trade Loans and Open Account trade.

Hausherr, European Product Head of Supply Chain Finance (SCF) has been part of the Wolfsberg Drafting Group for the past two years holding the SCF baton working alongside other SCF expertise as well as those covering compliance and anti-financial crime. Three years after the publication of the ICC Definitions for Supply Chain Finance, he sees this as “another important milestone that paves the road to foster further growth of SCF business in the market”.

“I am proud and delighted to see the latest edition of the Trade Finance Principles being publicly released by the Wolfsberg Group,” says Hausherr. He continues, “Over the past two years, I had the honour of ‘holding the pen’ for supply chain finance and working together with a great team of international subject matter experts on compliance, anti-financial crime and supply chain finance.”

The Wolfsberg Group is an association of 13 global banks which aims to develop frameworks and guidance for the management of financial crime risks, particularly with respect to know your customer (KYC), anti-money laundering (AML) and counter terrorist financing policies.

Supply chain finance client and counterparty checks

The Open Account Appendix elaborates on the question of Know Your Customer (KYC) in the context of supply chain finance (SCF), and looks at the most prominent SCF techniques: receivables discounting and payables finance. The Appendix provides industry guidance on how clients and counterparties in the context of supply chain finance should be treated in terms of client due diligence and risk based checks.

As explained in a press release from the ICC Banking Commission, “The document addresses the due diligence required by global and regional financial institutions of all sizes in the financing of international trade and will now feature information on open account trade and financial institutions’ trade loans.

Importantly, the appendix on open account provides guidance on the specific application of controls by banks in the context of open account trade transactions and analyse receivables purchase techniques as defined by the Global Supply Chain Finance Forum. The second newly added appendix also, explains the press release, “provides guidance on the application of controls by banks in the context of financial institutions trade loans (FITL), also called bank-to-bank trade loans”.

Working together

Tracy Paradise, Executive Secretary, The Wolfsberg Group commented, “In the two years since BAFT, the ICC and the Wolfsberg Group published their last update to the Trade Finance Principles, the working group has not lessened its efforts or enthusiasm, producing very welcome additional guidance on open account trade and the financing of international trade more broadly. We trust that those involved in these transactions will find this useful, particularly all aspects of the controls required in this area.”

In his foreword to the amended principles, Drafting Group Chair William Toren reflects on the increase in cross-industry cooperation, “It is encouraging to see that the focus on preventing and identifying money laundering activity in global trade has not only increased over the past few years, but that it has shifted away from relying solely on the preventative measures from banks and that this is leading to more cooperation between regulators, law enforcement and banks (either directly or via industry groups).”

To  access the document, please click here

Christian Hausherr

European Product Head of Supply Chain Finance and Global Supply Chain Finance Forum chair

Christian Hausherr

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