Thursday 10 December 2015

CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

I write this, our final newsletter of 2015, in the after-glow of our annual Christmas party, held this year in the lofty heights of the Kensington Roof Gardens. This successful event was an opportunity for us at ITFA to say “thank you” to you, our members, for your continuous support of this association. And there are more of you than ever supporting us, with eight new members added in the last few months.  As I mentioned at the party we are not resting on our laurels and for the coming year plan:
  • speaker participation at a number of conferences organised by our partners GTR and TFR in Europe, Africa and Asia
  • new workshops
  • an expansion of our mentoring programme
  • social events in London and Amsterdam
  • increased activity from our newly - formed insurance committee (see later in this newsletter)

Last, and very much not least, I was able to announce that 2016’s annual conference will be held in Warsaw from 7th - 9th September (with an educational seminar on 6th September).

Looking back at the market conditions within which we operated in 2015, most notably Emerging Markets (EM) and commodities have had a tumultuous 2015, to say the least. With oil trading at multi year lows, and EM growth failing to gather steam, particularly in China, investors became more risk averse as the year progressed.

The strong USD, most notably against EM currencies, weakening China growth and deteriorating global trade, are expected to continue to act as a drag on EM countries in 2016 as they continue to experience a deteriorating balance of payments and a persistent adverse impact on growth. Local EM political issues, coupled with the further deterioration in global trade and weak commodity prices are also expected to maintain downward pressure on EM currencies in 2016.

A few of the most important economic data to look out for in the weeks and months ahead are China’s demand for imports, especially commodities as well as their exports. Fears of a hard landing in China remain alive as the decline in the commodities space also had its fair share of contributing to risk adverse mode which characterized most of 2015. The weaker energy and metal prices were of particular concern as the outlook for Chinese and global GDP weighed on market sentiment. Any possible stabilization of supply and demand for oil in 2016 from current levels would be welcomed as this would also contribute to abating deflationary fears.

Let’s all hope that 2016 will be more benevolent to all of us. May I take this opportunity to wish you all the very best for the festive season and a year full of health and prosperity.

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email,  

Best wishes,
Sean Edwards


Undoubtedly, 2015 was a challenging year for emerging market (EM) currencies, and 2016 is expected to bring some challenges too, albeit many analysts believe that the pace of depreciation will be significantly lower than 2015. The concoction of expectations of a first US rate hike in over 9 years coupled with Chinese GDP failing to meet market expectations as well as oil prices hitting record low which is expected to persist during the first half of 2016, have kept emerging market investors on the side-lines, with volatility expected to persist well into the New Year.

Monday 7th December played host to the ITFA Christmas Cocktail Party that took place at The Roof Garden, Kensington, London. It was a joyous occasion that brought together many ITFA members and friends from all over the world to come and enjoy a little fun, music, and networking.  One of the greatest benefits of our Association, though not the only one, is the ability to establish and re-new contacts and network with fellow colleagues. It was our great pleasure, at this event, to welcome so many of our existing members and friends and we truly hope that you found the cocktail enjoyable. It was evident that the association is really growing as we saw so many new faces at the cocktail. We sincerely enjoyed your great company. We managed to attract a record number this year to the event. Thanks for the support.

I am sure you all agree that the venue chosen was looking spectacular. The Kensington Roof Gardens were inaugurated in May 1938 and was later acknowledged as a place of ‘Specific Historical Interest’ and given a Grade II listing by English Heritage. The space on the 6th floor of the building was later transformed into an amazing events space, restaurant and club.

The evening’s festivities began with welcome drinks which the guests especially enjoyed after attending the insurance committee event held at Liberty Specialty Markets. We would like to thank Liberty Specialty Markets for hosting such an informative session. For more information on this event, please read through the next article.

The partitions to the new rooms were opened after the initial drinks so Sean Edwards could give a short speech summarizing the work that ITFA would do in particular on BAFT and other insurance incentives.

The evening continued with great music and dancing which lasted well into the night. Those attending enjoyed a lovely walk through the mystical gardens. The ITFA Christmas Party was a huge success; an entertaining and exciting way to celebrate the festive season. To view photos of the event, please click here.

On behalf of the ITFA Board, we thank you all for attending our Christmas party. One last word goes out to our members whom we thank for their constant support.  We wish to continue receiving your feedback in order to provide more value to our members, as well as encouraging you to keep your ITFA ambassador hats on, with a view to attracting more institutions to join.

We do hope you have a fun and safe holiday season wherever you are and we look forward to welcoming the New Year, 2016. We would like to take this opportunity to wish you and your families all the very best for the festive season and a Prosperous New Year.

As always, we look forward to seeing you at our future events.


On 7th December 2015, the ITFA Insurance Committee gave the first presentation about its activities followed by a panel discussion during which all participants had the possibility to ask questions and share their opinions on how banks and the insurance market could best work together. The venue was kindly sponsored by Liberty Specialty Markets. Below is a short summary of the topics presented and discussed.

Insurance Survey

In order to better understand the profile and expectations of the ITFA membership, the Insurance Committee had carried out a survey. Sean Edwards presented the main responses, which were as follows:

41 ITFA members participated in the survey. Among the respondents, 78% worked for banks and of those over 50% are regulated under the IRBA.

Over 70% of the respondents use insurance.

Those who answered that they do not use insurance gave as main reason for not doing so the fact that insurance cover would not help increasing credit capacity. Respondents indicating other reasons for not using insurance unfortunately did not indicate what exactly those other reasons were.

Institutions using insurance do mitigate their entire product range, mainly for risk mitigation but also in order to get regulatory capital relief and credit support:

But users of insurance also see many areas for improvement:

Most banks use one or more brokers:

And have a positive claims experience:

And last but not least, the survey gave a clear vote in favor of a standard market policy form:

Presentation on Insurance

The survey presentation was followed by a short introduction about the insurance committee, and on how insurance products could best support banks' activities in transaction banking and trade finance.

First Sébastien Heurtuex, Deputy Head Trade & Insurance Syndications at BNP Paribas explained the regulatory challenges banks face when using insurance and how banks can enhance the efficiency of insuring their assets.

David Neckar, Product Development Director Political & Credit Risks at Willis Limited, then gave an introduction to the insurance market and its evolution over the last ten years.

Thereafter Duarte Pedreira, Corporate Manager Trade Credit at AIG and Silja Calac, Senior Surety Underwriter, Swiss Re Corporate Solutions gave some more detailed explanations on Credit Risk Insurance, Surety and PRI.

The slides on these presentations can be found in the member area of the ITFA website and can only be viewed by ITFA members.

Panel Discussion and Q&A

The presentations were followed by a panel discussion moderated by Elizabeth Dexter, Senior Underwriter Global Financial Risks, Liberty Specialty Markets, and questions and comments from the audience. 

Discussions mainly addressed the question in how far it was possible and useful to have a standard market policy. The panel and participants agreed that this would be a major challenge due to the variety of products and the fact that not only insurance companies but also banks use a multitude of wordings, which are often structured very differently. The committee would have to adopt a step-by-step approach starting probably with a sort of checklist. Nevertheless, the appetite for a more uniform wording or approach to documentation which reflects common concerns and issues was overwhelmingly demonstrated and will be considered very closely by the committee. 

Another concern was if there would be sufficient capacity in the insurance market if cooperation between banks and insurance increases significantly. The necessity to improve training for banks was brought up and the ITFA insurance committee was pleased to announce that the first initiatives for next year have been planned. The dates will soon be available on the ITFA website.


The ITFA Board is pleased to announce the following two new members.

BMCE Bank International Plc (BMCE), is a leading international bank specialising in African investment. They connect international institutions and investors with a diverse portfolio of investment opportunities on the continent.

BMCE structures private sector deals that are below the radar of larger investment banks and beyond the scope of local banks. They also offer a full service of investment and wholesale banking facilities with core divisions in Corporate Banking and Financial Markets. They specialize in providing corporations in Africa with access to international capital markets and financial expertise.

Gustavo Seco will be the main delegate for all ITFA related matters.

XL Catlin is a global insurance company headquartered in Ireland with executive offices in Hamilton, Bermuda and Stamford, Connecticut, USA. The company has offices in Europe, North America, South America, Asia, Australia and Africa. On January 9, 2015, XL Group announced the acquisition of Catlin Group. XL Catlin, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises throughout the world.

As part of its specialty products, XL Catlin provides political risk insurance and trade credit insurance. In collaboration with brokers, they service various business sectors involved in cross-border lending, trade, infrastructure, energy and foreign direct investments across a variety of industries. XL Catlin is Berne Union member and an A+ rated entity by S&P.

Juliette Barre will be the main delegate for all ITFA related matters.


We wish to remind our readers of BCR Publishing's upcoming event - Supply Chain Finance Summit 2016 which is going to be held between 28 - 29 January at the Fleming's Conference Hotel, Frankfurt, Germany. Key themes to be discussed include: 'Back to SCF basics’ complimentary breakfast briefing; driving increased value from the supply chain from procurement to treasury: corporate case studies; learning lab: behavioral economics and supplier relationship management; and supplier on-boarding, digitization and e-invoicing.

Monday 16 November 2015

CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

As we put this newsletter to bed, the tragic news of the Paris attacks began to appear on, and then dominate, our television screens. We are not aware of any fatalities or injuries amongst our Paris-based members, a blessing to our close-knit market. ITFA condemns terrorism and the use of violence in all circumstances.  One of the often cited reasons for alienation amongst those perpetrating terrorism is poverty. I have always believed that responsible business is the greatest antidote to poverty  and that, in the less developed and emerging world, this is best encouraged through the development of international trade. Enabling this business is our business as trade financiers and is, in particular, the vocation of our own market which provides fast, liquid and simple solutions to enabling trade. This was the clear conclusion I took away from the Afreximbank Advanced Structured Trade Finance Seminar held last week in Nairobi (more on this in the next newsletter) where an ITFA team was invited to speak.

Looking at the markets, we are into the final stretch of 2015, a year which has clearly had its challenges not only for the adverse market conditions within which we have had to contend with for pretty much the greater part of the year, but also for the less benign outlook which is seemingly hampering economic growth within the emerging market (EM) economies.

Emerging Markets (EM) have been pretty much in the limelight for the best part of H2 2015. The year-long depreciation of EM currencies from mid-2014 up to the beginning of September was highly volatile at times. However, many of the major EM economies managed to withstand the negative spill-over effects in the past year. EM are more robust and better equipped to deal with crisis, however, there remains lingering structural risk from the massive build-up in foreign currency liabilities and weakness in capital inflows. Furthermore, banking systems are more robust whilst financial regulatory has improved markedly. This has enabled EM currencies (and subsequently their respective underlying economies) to be less susceptible to crisis.

During the month of October, EM benefited from large inflows in credit markets and a relief rally ensued. Asset classes which had sold off in August and September, particularly the energy sector (oil & gas), as well as the mining and metals sector were amongst the best performers in October. Apart from investors wanting to take advantage of beaten down valuations, this positive performance came on the back of supportive and accommodative central banks in China and the Eurozone, and a seemingly clearer path of interest rates as dictated by the US Federal Reserve. Since October, the picture has been mixed, however, with the Paris attacks adding to volatility.  

My appointment as Chairman to the ITFA board has coincided with this period of uncertainty.. I think that volatility and weakness is to remain the new normal for some time, but I can assure you all, that as far as ITFA is concerned, both the Board and the team behind the scenes will strive to achieve the best position for all members of our growing Association. The trade receivables market contains much untapped supply, as we saw in Nairobi, and bringing our members closer to those markets is, and will continue to be, one of our major goals.     

May I remind you all that with the Christmas season just around the corner, the ITFA Board is pleased to invite all ITFA members to attend the yearly informal gathering; the ITFA Christmas Cocktail Party. As previously communicated, we would greatly appreciate if you could RSVP on by latest 25 November 2015. The event is being held at The Roof Garden, Kensington, London on Monday 7th December 2015 at 19:00 hrs. To view the invite please click here. As always, we encourage you all to attend this valuable networking opportunity, so please…save the date! As a reminder, this event is open to members only.

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email,  

Best wishes,
Sean Edwards

Sunday 15 November 2015


Clarissa Dann reports from the 42nd annual ITFA conference in Dubai that forfaiting is alive and well and it's all change on the board.

When Paolo Provera addressed a packed auditorium at the Jumeirah Beach hotel in Dubai for the last time as ITFA chair, he confessed that his earlier misgivings about venturing outside Europe to Dubai were unfounded.
Some 230 participants representing around 30 countries set an all-time record for the professional body's main annual gathering, and the choice of location has widened ITFA's Middle East reach.
"While we have tried to cover the full spectrum of trade finance, we should never forget that forfaiting is the heart of our association," said Provera.
The 42nd annual conference had themes of endings, beginnings and continuations, not least of which because there were ITFA board changes. In Clarissa's preview, "All aboard!", she recalled how one delegate said that attending these conferences was like being at a wedding and was made to feel part of the family. Having had four "weddings" under her TFR belt, this year Clarissa's thoughts had been propelled to the other end of the life spectrum.
"Our personal thoughts go to a friend of ours. You remember Kendrick, the man with the pink camera, he passed away a few days ago and I would like you to raise a glass to him tonight", added Provera. Kendrick Struthers Watson was my partner, who had joined me in Dubrovnik and Barcelona, and had helped out as photographer at many events. It was a testament to the inclusiveness and sense of family at these gatherings that I felt able to attend, knowing I would return to his funeral. And we did raise our glasses that evening - in our flip-flops on Jumeirah Beach. The stars were particularly bright that night.
New committee
Provera closed his remarks by officially standing down as chair while remaining honorary chairman, and it was at the annual general meeting that vice chair Sean Edwards (head of legal at SMBC Europe) was confirmed as his successor. ITFA treasurer Daniel Schär also said goodbye. The line-up with new board joiners (marked*) comprises:
  • Sean Edwards, SMBC: chairman.
  • Damian Austin, (resigned from Barclays): deputy chairman and head of regions.
  • Lorna Pillow, London Forfaiting Company: head of communications and membership.
  • Silja Calac, Swiss Re Corporate Solutions: head of insurance and treasurer.
  • Paul Coles, Bank of America Merrill Lynch: head of market practice.
  • *Chris Hall, Lloyds Bank: head of young professionals.
  • *Zeyno de Vries-Davutoglu, Credit Europe Bank: head of education.
  • Jing (Jane) Li, Bank of China: head of Asia.
  • *Anurag Chaudhary, Citi, head of institutional relations.
Board papers indicated that the ITFA was in good shape and profits are being invested into market practice, regional committees and more marketing and communications.
Economic winds of change
First on the conference podium was Lloyds Bank Commercial Banking's chief economist Professor Trevor Williams. He said the "gale blowing through the global financial markets and relationships" was the result of "huge demographic changes underway in the world, adoption of the market economy and best practices, and the spread of information technology." 

Three factors dominated the outlook for the second half of 2015:
  • the imminent start to the normalisation of US - and eventually UK - interest rates;
  • the greater-than-expected weakness of the Chinese economy, with possible policy reversals; and
  • the continued fall in commodity prices (the last two are inter-connected).
Just over one month after the conference, we now hear that Federal Reserve may have an increase in short-term interest rates on the table by December (it has not lifted rates since 2006). This long period of low rates, said Williams, is "telling us that the crisis is not yet over". He made repeated references to the likelihood that US rates are likely to rise before those of other advanced economies - an indicator of its more balanced economy and its head start in 'normalising' rates - but this could have repercussions for the global economy.
"The fact that the shock in China has transmitted itself to the rest of the world shows how much relationships have changed," he pointed out before moving onto the commodities prices' continued fall. This, he said, exposed the frailty of those economies dependent on commodities exports. "The decline in oil prices is positive for advanced economies and some emergers but there are significant losers as well among the oil exporters."
"The slow growth in world trade is leading to another year of below trend GDP growth," he observed. But Williams remained optimistic about global growth and trade in medium term, driven, he says, by improving trade links, the adoption of best practices and demographics.
Insurance and supply chain
In recognition of the fact that insurance has become an increasingly important part of international trade finance, ITFA set up its new insurance committee on 18 August 2015, chaired by ITFA board member Silja Calac with Willis's David Neckar as secretary.
It was formally announced at the Dubai conference. Calac said, "There are many different insurance products which support banks in their task to forfait receivables, finance trade or issue guarantees and letters of credit. But bankers as well as brokers and insurers are often complaining that this cooperation is not as smooth as it should be: lack of information, misconceptions, regulations, internal barriers often hinder insurance companies from providing efficient protection to transaction banking."
Key objectives of the committee is to promote a deeper understanding of the role insurance plays in trade finance, and of the support which ITFA members need in order to make cooperation between banks and insurance smoother. Also, education is considered a top priority of the committee.
In a presentation that focused on the banks' use of credit insurance as a risk mitigant and a means of obtaining regulatory capital relief (the insurer's policy takes the place of the borrower's credit exposure), David Neckar set the scene for why insurance is such an important tool.
"We have seen a huge pressure on liquidity, accompanied at the same time by a very difficult shrinkage in the economy, which has meant there are more banks looking to develop opportunities with plenty of capital in a field that has shrunk, but where regulation has grown exponentially." Lack of understanding of what credit risk insurance can do for banks and businesses was, he said, one of the main reasons why its use was not more widely developed. The ITFA is determined to put this right.
Less dramatic but no less illustrative of the role of ITFA in the increasingly broad and cross-pollinating world of trade receivables finance were presentations on the ICC’s Supply Chain Finance Definitions project from Abhijit Prasad of HSBC and, to round off the conference from Edwards, on the Basel III opinion commissioned by ITFA from Sullivan &Worcester on the credit risk mitigation status of the BAFT master sub-participation agreement. The Supply Chain Finance Definitions will be shaping TFR's coverage of SCF as they evolve, but for the moment it is sufficient to say that forfaiting is acknowledged as one of the leading techniques in this field. The Basel opinion is, as Edwards said, a “present” to ITFA’s members: a cost-effective way of dealing with one of the myriad impacts of Basel on trade finance.
Forfaiting to the rescue
One of the highlights of the conference programme was the panel session chaired by the ICC Banking Commission's charismatic Vincent O'Brien on originating, financing and distributing trade receivables. Panellists included Damian Austin (ITFA Deputy Chairman), FIMBank's Simon Lay, HSBC's Abhijit Prasad, and Emirates NBD's Faisal Lalani.
When asked for an example of a "war story", one panellist shared how his bank had "put a classical forfaiting structure around what was traditionally a receivables financing facility", and had "moved an invoice discounting facility into a syndicated bills of exchange structure to eradicate performance risk on the seller". He continued, "The bill of exchange gave certainty of payment and removed some of that performance risk. The seller got into financial difficulties, but the structure we put around that protected not just us but the other banks in the eight-bank syndicate and nobody lost a penny because of the structure we put in".

Whoever said forfaiting was dead?

Saturday 14 November 2015


Chris Hall is Head of Trade Asset Management (TAM) for Lloyds Bank’s Global Transaction Banking, responsible for the development of the secondary market trade finance offering. Chris is based in London and has been in this role since early 2015 when he joined Lloyds to set up and establish TAM. Before this, he spent 9 years at the Royal Bank of Scotland.
Chris has 10 years of transaction banking experience, through sales of trade finance and international cash management solutions to corporates in London and the South East, followed by working in Trade Distribution, dealing mainly with Financial Institutions. He has also worked on the project delivery and strategy side of Transaction Banking, having been Business Manager to a senior Change Management executive.
Chris holds a LLB in Law from the University of Bristol and has attained Associate Membership of the Corporation of Treasurers (AMCT).
''Having been elected onto the ITFA Board at the recent conference, I am delighted to have been asked to build on the great work already done on the Young Professionals side of our business.

As Sean alluded to in his introduction to October’s newsletter, I think that the whole industry, let alone this organisation, is at a crossroads. I am keen to harness the wealth of experience we have in the trade finance and forfaiting world and use this to develop the next generation of colleagues and by extension the future growth of our markets. For me, this requires us to look across the whole spectrum from the back office through to the front office and to this end, I would ask all members of the Association to nominate those who you think would benefit from this development.

I will be working closely with both Paul Coles and Zeyno de Vries-Davutoglu on the Market Practice and Education briefs as they are inextricably linked. We would like to run some round-table sessions and panel discussions, quite possibly on a virtual basis to allow greater participation and would like to tie in with some of the mentoring work that Duarte Pedreira has been running. For new entrants to the industry, much of our world, whether it be our products or MRPAs can be a mystery that we would like to help clarify! I would ask all members of the Association to nominate those who you think would benefit from this tailored development and mentoring and similarly, should any of you like to be mentors, then please reach out to Duarte or myself.

Many of you will have attended the “Alternative” or the ITFA Conference and I am delighted to see so many colleagues joining for the first time. We will work to create more, similar, opportunities for networking and development and will co-ordinate with the regional committees and where possible make sure that our Young Professionals can build strong cross-border networks which will allow them to function effectively in the business.

You will also have seen that ITFA will be starting to use Twitter, Linkedin and other forms of social media more often, giving greater exposure to both the Association’s and YP’s latest news. If you haven’t already, please connect with, or follow, ITFA and watch out for our updates and retweets!

Amongst others, Johanna Wissing, Philipp Moulas and Duarte Pedreira have been heavily involved with these initiatives so far - my thanks to them all - if there are any other volunteers who would like to work with us on developing this further, please let me know by sending an email on''

Friday 13 November 2015


The ITFA Board is pleased to announce the following new member.

Tawreeq Holdings is a group of related corporate entities, based in the UAE and Luxembourg, offering comprehensive Sharia-complaint Supply Chain Finance (SCF) solutions targeting SMEs and their corporate clients in the public and private sectors across the MENA region.

Tawreeq Holdings Group offers its range of services across four separate subsidiaries, utilising the flexibility to serve its clients. The Group includes Dar Al Tawreeq Forfaiting and Factoring Services, ISCF Limited, Tawreeq Investments and HMR Consulting. The range of services include Sharia-Complaint factoring, forfaiting, reverse factoring and tailored SCF solutions offered through the world-first Sharia-Complaint SCF platform.

The Group offers multiple trade secularization programs and other innovative short-term asset-backed alternative investments.

Harish Parameswaran will be the main delegate for all ITFA related matters.

Tuesday 10 November 2015


With Christmas fast approaching, the ITFA Board is pleased to invite ITFA members to attend its yearly informal gathering; the ITFA Christmas Cocktail Party. To view the invite please click here. The event is being held at The Roof Garden, Kensington, London on Monday 7th December 2015 at 19:00 hrs. 

Invites to the Christmas event have already been sent to the main delegate of each member association and to non-member individuals who attended the Dubai Conference. Please keep in mind that the invite is for MEMBERS ONLY and access to the event is restricted to 5 confirmed guests per member institution. Names of attendees are to be kindly sent through the main delegate. We truly appreciate should you RSVP on by latest 25 November 2015.

May we also take the opportunity to remind all our members of the ITFA Insurance Committee Presentation which is being held at Liberty Specialty Markets, 20 Fenchurch Street, London on 7th December,  just before the ITFA Xmas Party. Admission to the event is at 15:30 hrs and will end at 18:30 hrs. This event is open to two delegates per member institution, therefore we would appreciate if you could RSVP on by latest 25 November 2015. 

As always, we encourage you all to attend these invaluable networking opportunities. We look forward to seeing most of you there. So the date!

Tuesday 13 October 2015

CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

The sun has set on ITFA’s most successful conference to date.  A record number of participants attended the main conference and the educational seminar, held at Dubai Chamber with the assistance of our partners at the ICC, which was the most interactive and lively I have attended. One of the challenges we set ourselves in organising the conference in Dubai was to impart some of the accumulated knowledge of our particular brand of originating, managing and distributing trade finance risk to bankers and financiers in the Middle East and, with wide local and regional attendance, I feel that we rose to that challenge very well.

As I mentioned during the opening night dinner this was a conference of firsts and lasts. The “first first”, and, for me, the most personally significant, is that I have now become your Chairman. This is, of course, a great honour but equally a great responsibility as ITFA is now, I believe, at a seminal point in its existence. As the frontiers, and even the meaning, of supply chain finance, of which we are part, evolve and expand, the association has the opportunity to play an important part in this dynamic and very elastic sector. Which brings me to the second first, namely the new members of the Board. As we have already announced , the existing Board has been joined by Zeyno De Vries-Davutoglu of Credit Europe Bank, Chris Hall of Lloyds Bank and Anurag Chaudhary of Citibank. With the current members of your Board, I believe we have a strong team to make an even stronger impact.

Some of these changes would not have been possible without two of the lasts I would like to mention.  Paolo Provera, our chairman for these last six years, has retired from his position and Dubai was therefore his last conference as Chairman. ITFA and his members owe him a large debt of gratitude. Under his faultlessly charming leadership, the association has broadened its profile and enhanced its professionalism. He will certainly be a tough act to follow. Dubai was also the last conference of Daniel Schär our treasurer. Finally, our conference organiser of the last 15 years, Faye Hamilton, has retired from business life. Her last conference was as always flawlessly organised and her successor, Ana Sjolund, who assisted Faye as a conference hostess, will have a high standard to live up to. (As I write we are exploring our venue options for next year).

It is not necessary for me to remind the membership of the recent turmoil in world markets and especially in commodities. The situation is volatile and may yet recover or at least stabilise but one of the strengths of our particular market is its relative resilience due to its broad base. Moreover, the large pool of unbanked receivables globally which can be unlocked, in part, by use of the techniques we excel at underpins the prospects of future growth. ITFA has an important part to play in fostering that growth and ensuring it reaches its full potential.   

Last but not least, with the Christmas season fast approaching, the ITFA Board is pleased to invite all ITFA members to attend the yearly informal gathering; the ITFA Christmas Cocktail Party. To view the invite please click here. The event is being held at The Roof Garden, Kensington, London on Monday 7th December 2015 at 19:00 hrs. As always, we encourage you all to attend this valuable networking opportunity, so please…save the date!

As always, we look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email,

Best wishes,
Sean Edwards

TRANSFERABILITY OF RIGHTS UNDER DEMAND GUARANTEES IN GERMAN LAW, by Jorg Gloss, Berliner Sparkasse - Branch of Landesbank Berlin AG, Corporate Development and Legal

The technical paper deals with the "Transferability of rights under Demand Guarantees in German law" written by Mr Jörg Gloss, Berliner Sparkasse - Branch of Landesbank Berlin AG, Corporate Development and Legal.

1.    Different perspectives: Demand Guarantee as an obligation and Demand Guarantee as collateral security

It is quite a difference in perspective whether a bank issues a demand guarantee or whether a bank accepts a demand guarantee as collateral security.

In both situations a bank will be interested in a guarantee that provides clear terms for a demand (in most cases either a simple demand or a demand together with a declaration and/or a submission of specific documents) with as little examination duties as possible for the respective guarantor.

For banks issuing guarantees the transferability of the rights under a guarantee is not very attractive as the potential additional administrative effort in examining demands by or payments to assignees is invariably not compensated for. This potential additional administrative effort consists in the examination of the assignee’s (or of several assignees’) entitlement to the rights under the guarantee in order to avoid the risk of a payment to a person not entitled.

Either the original beneficiary and assignor has given a written notice of assignment to the guarantor or the guarantor may demand from the assignee submission of the assignment agreement.[1]

The perspective of a bank which wants to benefit from a demand guarantee (issued in connection with the receivable) when purchasing a receivable à forfait is obviously different. The forfaiting bank wants to have transferred to it the rights under the demand guarantee and possibly to transfer these rights to subsequent purchasers. 

2.    The Law governing the assignability of a claim or right

According to the applicable EU-Regulation[2] the law governing the assigned claim shall determine its assignability. Therefore, if the demand guarantee is – either expressly or according to article 4 of the said regulation - governed by German law, the assignability of the rights under it shall be determined by German law. 

3.   The Distinction between the Right to Proceeds and the Right to         make a Demand under a Guarantee

The beneficiary’s right to the proceeds only arises once a demand is made which complies with the conditions stipulated in the guarantee, in most cases a specific declaration. On the other hand the right to make a demand and consequently the fulfillment of these conditions which (although abstract and to be examined on a documentary basis) are aimed at a specific security purpose (e.g. security for the payment of a purchase price, security for the performance of specific contractual obligations) may depend on different and more complex criteria, e.g. on specific events in a contractual relationship and their evaluation. The distinction between the right to proceeds and the right to make a demand under a guarantee is reasonable and has been an established distinction for considerable time.[3] 

4.   Assignment of Proceeds

Once a demand complying with the conditions stipulated in the guarantee has been made the right to proceeds comes into existence and can be assigned. According to section 354a of the German Commercial Code a provision in the guarantee prohibiting such assignment will not render the assignment void. But the guarantor may still choose to pay to the original beneficiary thereby being released from its payment obligation (in the context of a demand guarantee issued by a bank it is neither practical nor likely that payment will be made to the original beneficiary after a notice of assignment has been received by the guarantor).

The conditions for the applicability of the mentioned section will almost regularly be met: the right to proceeds is a claim for money and the agreement giving rise to the right to proceeds (the demand guarantee) will in most cases constitute a commercial transaction for the parties of the guarantee as defined in section 343 of the German Commercial Code. 

5.   Assignment of the right to make a demand

5.1 Assignment of the right to make a demand where the guarantee is silent as to its transferability

Many demand guarantees do not contain any provision as to their transferability or the assignability of rights under it. Reported court judgments do not relate to an assignment of the right to make a demand under a demand guarantee which is silent as to its transferability. Published articles and commentaries differ in their views. The following thoughts are based on what I perceive to be the most persuasive legal argumentation. 

5.1.1    The right to make a demand as an accessory ancillary right

Section 401 of the German Civil Code provides for a transfer of the accessory rights when transferring the rights to which the accessory rights belong. There is case law applying this section “per analogiam” to ancillary rights closely related to the rights which are to be transferred. One could think of arguing the assignability of the right to make a demand under an independent, non-accessory demand guarantee by applying the mentioned section “per analogiam”.

But it is almost impossible to conceive the right to make a demand under a demand guarantee as an ancillary right only. Rather considering the nature of a demand guarantee the right to make a demand is the most important and essential right. Furthermore, the application of a statutory rule “per analogiam” should be restrictive. Therefore, the mentioned section should not apply to the transfer of the right to make a demand under a demand guarantee[4].

5.1.2    Restriction of Assignability of a claim

According to section 399 of the German Civil Code the assignment of a claim is not allowed if either the performance to the benefit of a person other than the original creditor would change the content of the performance or if the assignment is excluded by agreement with the debtor (either expressly or by implication, e.g. the right to performance by the employee in an employment contract).

The content of the performance of the guarantor’s obligations under a demand guarantee (examination of a demand and subsequent demand rejection or payment) would not change by the fact that the demand is made by an assignee.

Due to the security agreement between the party instructing the guarantor and its counterparty (the beneficiary of the guarantee) the guarantee carries a specific security function closely related to the underlying contract (e.g. to serve as security for the performance of payment obligations or of other specific contractual obligations). In addition, the exercise of the security function of a demand guarantee does not require any evidence that the right to make a demand has crystallized. Rather, a formalized demand according to the conditions stipulated in the guarantee is sufficient to trigger the payment obligation of the guarantor.

These circumstances show that a demand guarantee presupposes a considerable amount of trust by the guarantor and the party instructing it and ultimately privity to the underlying contract by the beneficiary. Neither the party instructing the guarantor nor the guarantor would extend the necessary trust to grant the right to make a demand to any other person.

Although the guarantor is not a party to the underlying contract, the guarantor knows about the security function of its guarantee obligations, is well aware of the trust extended to the beneficiary and takes a vital interest in avoiding any increase of the danger of fraudulent or unrightful demands under its guarantee.

Professional guarantors like banks do not simply rely on the credit risk of their instructing customers and forget about the identity of the beneficiary. For compliance purposes and in order to protect its own reputation and the reputation of its demand guarantee business a guarantor is always keen to understand (although not to accurately assess) the underlying situation including the security function of the demand guarantee, the identity of the beneficiary and its role in the underlying contract.

The necessary trust involved in demand guarantees is equally shared by both the party instructing the guarantor and the guarantor itself.

It does not seem clear, whether a demand guarantee securing a payment obligation the performance of which may easily be evidenced (as opposed to demand guarantees requiring declarations and/or documents relating to specific breaches of contract), presupposes a lesser degree of trust.

For these reasons a demand guarantee is to be construed as containing an implied exclusion of the assignment of the right to make a demand. Section 354a of the German Commercial Code does not apply to the right to make a demand because it is not a claim for money.

An assignment of the right to make a demand would require the consent of the party instructing the guarantor and of the guarantor and an according amendment to the guarantee.

5.2  Assignment of the right to make a demand where the demand guarantee provides for the assignability of such right

5.2.1    German Law

At present there are at least two reported judgements of the German Federal Court of Justice[5] holding that an assignment of the right to make a demand is possible to the extent such assignment is expressly allowed in the demand guarantee.

Such assignability provision in the demand guarantee would indicate from the beginning that the party instructing the guarantor and the guarantor agree that the beneficiary is entitled to delegate the trust inherent in the demand guarantee to the assignee(s) of its choice[6].

5.2.2     URDG 758

The URDG 758 are even more cautious in allowing the transfer of a demand guarantee (transfer constructively meaning the issuance of a demand guarantee with identical conditions to the new beneficiary).

Not only must the demand guarantee expressly indicate that it is “transferable” but:

-    Even if the guarantee is transferable a transfer is still subject to the consent of the guarantor

-  The guarantee may be transferred more than once but it may not be transferred partially

-   The transferor must submit to the guarantor a signed statement that the transferee acquired the transferor’s rights and obligation in the underlying relationship.

6.   Conclusion

In order to assign the right to make a demand under a demand guarantee governed by German law it is highly recommendable to expressly provide for the assignability of the right to make a demand under it. Such a provision would, of course, need to be covered by the instruction or consent of the party instructing the guarantor and by the consent of the guarantor.

In order for the assignor to avoid any liability in case of a fraudulent or unrightful demand by the assignee and new beneficiary, the latter should expressly assume (e.g. in the forfaiting agreement) the obligation to respect the security purpose of the demand guarantee. This obligation should generally not be a burden for the assignee and forfaiter or subsequent assignee and forfaiter because it will also become the creditor of the secured receivable and thus be in a position to monitor the performance under the receivable.

As a further precautionary measure the forfaiting agreement should include an obligation by the original beneficiary of the demand guarantee (assuming that it is a party to the forfaiting agreement) to make a demand under the guarantee at the request of the forfaiter.

Alternatively, a new guarantee may be issued directly to the benefit of the forfaiter.

If the demand guarantee is subject to the URDG 758 the requirements stipulated in art. 33 URDG 758 will have to be met.

[1] According to section 410 of the German Civil Code, which would be applicable to the relationship between assignee and debtor (here the guarantor) in accordance with art. 14 (2) of the EU Regulation 593/2008 (“Rome I”) if the demand guarantee is subject to German law
[2] EU Regulation 593/2008 (“Rome I”), art. 14 (2)
[3] The distinction is reflected in Art. 4 URDG 458, Art. 33 URDG 758, R. 6.06 ISP and in articles 9 and 10 of the UNCITRAL Convention on Independent Guarantees and Stand-by Letters of Credit (adopted by the UN General Assembly on 11 Dec. 1995 and in force since 1 Jan. 2000 between Ecuador, El Salvador, Kuwait, Panama and Tunisia and up until today also Belarus, Gabon and Liberia)
[4] In a decision of 1987 the German Federal Court of Justice (BGH NJW 1987, 2075) referred to section 401 of the German Civil Code in holding that the right to make a demand was assigned together with an accessory suretyship (“Bürgschaft”). Most commentators are of the view that this decision should be treated with caution when applying it to independent demand guarantees. The facts are quite singular and an accessory suretyship can only be assigned together with the secured claim.
[5] BGHZ 90, 287, 291; BGH WM 1999, 72,73
[6] According to the German Federal Court of Justice the assigning beneficiary of an independent security right is under the obligation to oblige the assignee and new beneficiary to respect the security purpose of the demand guarantee (BGH NJW 1997, 461, 463f.)