Tuesday 9 June 2015

CHAIRMAN'S MESSAGE - Paolo Provera, Chairman ITFA / General Manager ABC International Bank Plc.- Milan Branch

Dear Members and Friends,

Sell in May and go away - I am sure many of you have heard this saying, but no one would have predicted the extent at which credit markets, both equities and bonds, would have sold off last month, primarily in the euro area. And June is offering no respite so far. With summer just around the corner, and trading activity tending to subside during this period, emerging markets could well benefit from the subdued trading activity on capital markets, as growth forecasts seem to be stabilising, albeit selectively by region, on the back of the recent recovery in commodity prices.

Recent reports seem to indicate that the depth of the Russian recession may be less severe than previously expected. Forecasts now point towards a 4% GDP contraction in Russia in 2015, especially given the recent oil price rebound and early signs of recovery in business and consumer confidence. Business surveys are now pointing to recovery in activity.

All in all, the emerging market growth recovery is intact, but headwinds remain. Asia continues to be the clear leader for EM growth, but Q115 data has proven to be underwhelming. Chinese growth has already dropped to 7% from 7.2%, and data continues to disappoint. In Latin America, growth prospects remain somewhat subdued and with little indication so far that the relief from commodity prices will translate to much better growth this year.

Enough about emerging markets for now. In this Newsletter, I would like to introduce two new individuals within our growing Association, namely Duncan Friggieri and Alexia Vella. Their recruitment was deemed necessary as we felt that the administrative work of our Association could no longer be handled by the Board, due to the growing volume of work involved. Their roles as Administrators include supporting our members on any issues/queries which they might have, to offer members faster replies, the on-boarding of new members, to increase communication thus supporting the Board, co-ordination and communication of events/training courses as well as all online-related material, to name a few.

As I am sure you are well aware, both Duncan and Alexia have been instrumental since the turn of the year in keeping you all well informed of any developments within our Association. They have provided us Board Members with the much needed impetus to take our Association forward and reap as much synergies as possible. I, on behalf of the Board, would like to thank them both for their support in the last few months.

It goes without saying that preparations for our forthcoming Annual Conference are in full swing, and the whole team is constantly working behind the scenes so as to ensure that this highly-anticipated event is fruitful to all attendees. We are pleased with the rate at which registrations have been coming through and this gives us the drive to continue working hard so that the event will be ultimately well-attended. We thank you all for your continuous support.

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, info@itfa.org.  

Best wishes
Paolo Provera

COMPLIANCE PAPER - FORFAITING - MONEY LAUNDERING AND KYC CHECKS (REVISITED); Lorna Pillow - ITFA Head of Communications and Membership and Senior Vice President, London Forfaiting Company Ltd.

Introduction & Background

Since the publication of the IFA (now ITFA) MPC Bulletin no 5 in September 2006 on ‘Money Laundering and “know your customer” checks in Forfaiting - a lot has happened.  The 3rd EU Money Laundering Directive has been passed into legislation by the various EU Jurisdictions and the International Chamber of Commerce has published URF 800, the Uniform Rules for Forfaiting.

In 2006, the ITFA brought to the attention of its members Guidance Notes issued by the Joint Money Laundering Steering Group (JMLSG) focusing on paragraphs specific to forfaiting.  The JMLSG is made up of the leading UK Trade Associations in the Financial Services Industry. Its aim is to ‘promulgate good practice in countering money laundering and to give practical assistance in interpreting the UK Money Laundering Regulations’.  

The JMLSG Guidance is addressed to those firms regulated in the UK by the Financial Conduct Authority (FCA). Other firms such as non-bank Forfaiting companies are advised that they ‘should have regard to the contents of the guidance.  The JMLSG Guidance has gone through a number of amendments, the latest being the 2014 Revised Version. 

Although the JMLSG Guidance is directed towards UK based institutions, its underlying basis is compliance with the UK’s Money Laundering Regulations, which implement the requirements set out in the 3rd EU Money Laundering Directive.  Therefore, with the exception of some jurisdictional nuances, they may be viewed as being broadly applicable for EU based financial institutions and probably ‘good practice’ procedures for most financial institutions.

The JMLSG Guidance sets out what is expected of firms and their staff in relation to the prevention of money laundering and terrorist financing and is contained in a series of three volumes which can be found here.

Scope of this Bulletin

For the purpose of this bulletin, Forfaiting is taken to mean the ‘without recourse’ discounting of trade or trade-related payment instruments which are capable of being sold into a secondary market.   

JMLSG Guidance on Forfaiting

The JMLSG Guidance (drafted with the assistance of ITFA) contains three paragraphs relating to Forfaiting which can be found in Part II of the Guidance. These paragraphs are reproduced below:

15.51     The diverse nature of forfaiting business is such that the exact nature of the transaction needs to be considered.  For example, the need to ensure authenticity may lead to enquiries being made of the importer's management, and it may be necessary to examine the commercial parts of documents, dependent on the nature of the underlying commercial transaction.

15.52     In the primary Forfaiting, or origination, market, a firm will usually be dealing directly with an  exporter,  who  will  be  its  customer  and  on  whom it  should  carry  out  due  diligence  in accordance with Part I, Chapter 5. In addition, as part of its risk-based approach, a firm, where appropriate,  should  scrutinise  the  other  party  to  the  underlying  commercial  transaction,  as well  as  the  transaction  itself,  to  satisfy  itself  of  the  validity  of  the  transaction.  The amount and depth of scrutiny will depend on the firm's risk assessment of the client and transaction.

15.53     In the secondary Forfaiting market, the firm's customer will be the person from whom it buys the evidence of debt. However if it holds a Forfait asset to maturity it will be receiving funds from the guarantor bank and thus it should as a matter of course perform due diligence on this entity as well. Using a risk-based approach, firms should also consider whether they should conduct some form of due diligence on the underlying parties to the transaction, as well as on the transaction itself. This will depend on a risk assessment of the countries and the types of clients or products and services involved. It may be necessary to examine documentation on the underlying commercial transaction. However, it should be borne in mind that the further away from the original transaction the purchaser of a Forfait asset is, the harder it will be to undertake meaningful due diligence.”[1]

This Guidance has not changed fundamentally since it was first introduced in 2006 and it can, therefore be said to have withstood the test of time. Experience since that date has, however, clarified the nature of a typical due diligence exercise and helped to identify the factors which determine the risk profile of a given transaction.

This position fits in well with the Uniform Rules for Forfaiting (ICC Publication no. 800) which require, under Article 13, for the primary forfaiter (the forfaiter who arranges the original transaction) to carry out appropriate steps in accordance with market practice to ensure that documentation reflects the underlying transaction. 

Application of Client Due Diligence measures in Forfaiting

Drawing on the above sections, a Forfaiter needs to carry out Customer Due Diligence (CDD) on the entities with which it has a business relationship i.e. the contractual seller of the forfaiting transaction as well as the other parties to the underlying transaction itself. 

JMLSG Guidance Part I Chapter 5 discusses minimum requirements for CDD measures applicable to various types of customers. However, as the ITFA global membership operates in a broad spread of jurisdictions, many of which have their own know your client requirements we will not address CDD in this paper.  Although it is worth noting that the JMLSG considers identification and verification measures to be two distinct tasks, noting that ‘Identification’ involves obtaining a range of information whilst ‘verification’ involves obtaining documents from a reliable and independent source that evidence such information.

In relation to documentation, in a supplier credit there will normally be fairly extensive documentation which should be checked in a similar manner to the money-laundering checks applied to a letter of credit. In a buyer credit, there is typically far less documentation. This is acceptable provided that the rationale for the absence of documentation is credible.

However, as pointed out by the JMLSG, wider due diligence issues are presented in the secondary Forfaiting market due to the secondary Forfaiter’s lack of involvement in the primary transaction and the resultant remoteness from other transactional counterparties.  (Normal CDD will be carried out on the seller of the forfait asset).Therefore, as part of their due diligence procedures, secondary Forfaiters will normally need to adopt internal procedures requiring them to undertake appropriate due diligence on parties to the transaction with whom they have no direct contact.

Usually, this is, at the very least, the obligor. Basic identification evidence should be obtained from public sources. The supplier having a relationship with the obligor should be in a position to assist the Forfaiter in obtaining documents which might not be available through public sources. This requirement may also be satisfied or accompanied by further investigation and consideration of the supplier’s business e.g. how do the obligors fit into the supplier’s business patterns, how long have they traded with them, etc. Where the transaction involves high risk goods or countries, such checks will normally extend to the original seller or supplier of goods and in such a case the overall nature of the trading relationship should be considered.   

In addition to the sections on Forfaiting and CDD measures, additional relevant information can be found in JMLSG Guidance Section 15, which provides guidance relevant to the Trade Finance Sector as a whole.

Compliance or Market Practice

It is not the intention of this Bulletin to cover the requirements of the JMLSG or state that such guidance is mandatory to all Forfaiters. Whereas the JMLSG guidance notes provide mandatory rules applicable to UK companies subject to the UK anti-money laundering regime, such rules are drawn on the FATF recommendations which set international standards on combating anti-money laundering and financing of terrorism.

Moreover, FATF reports that implementation of the recommendations by member countries is not always comparable.  EU countries are widely compliant, whilst some other countries are still lagging behind, or even worse, not cooperative at all.  This can be seen from the FATF reports on high-risk and non-cooperative jurisdictions. 

One of the key findings in ICC’s recently published report entitled The Global Survey 2014: Rethinking Trade and Finance, is that ‘70% of respondents cited lack of harmonization between jurisdictions as a key problem in KYC/AML’.  This situation increases the cost of KYC/AML due diligence leading to differences between the expected levels contained in the JMLSG extracts and actual overall market practice.

In conclusion, ITFA members are invited to refer to the FATF recommendations, JMLSG Guidance and Wolfsberg Group guidance notes to inform themselves on Industry Best practices appropriate to their own organizations in order to consider their own approach to ‘Forfaiting - Money Laundering and KYC Checks’.


[1]JMLSG Guidance for the UK Financial Sector, Part II: Sectoral Guidance, Amended: November 2014 

NEW ATFA PRESIDENT - Brendan Herley, President ATFA / Wells Fargo Bank - Director, Risk Distribution & Loan Syndications, Americas

The Association of Trade & Forfaiting in the Americas (ATFA) recently staged its 18th Annual Conference in Miami, attended by over 130 professionals from a dozen countries. The Conference followed a General Assembly Meeting whereat 3 new delegates were elected to the Board of Directors for 3-year terms along with a new President - see below. Joining ATFA’s Board were Don Harkey (Arthur J. Gallagher), Roberto Gatica (Banco Sabadell) and Victoria Gale (Arab Banking Corporation). Brendan Herley (Wells Fargo Bank) replaces John Weinshank (China Construction Bank), who stepped down after 3.5 years at the helm, and was elected to preside until May 2016.

Brendan Herley, Wells Fargo Bank
Don Harkey, Arthur J. Gallagher Risk Management
Harpreet Mann, QBE
Executive Director, Events
Agnes Alderson, ACE
Executive Director, Marketing
Nasrin Nourizadeh, FCIA
Executive Director, Membership
Kristy Ward, Wells Fargo Bank
Board Director 
Jane Belova-Barr, Standard Chartered Bank
Board Director 
Andre Fernandes, Banco Bradesco
Board Director  
Victoria Gale, Arab Banking Corp
Board Director  
Roberto Gatica, Banco Sabadell, Miami
Board Director  
Sam Moore, Fifth Third Bank

A dozen wide-ranging panel sessions ensued over a day and a half, plus a captivating keynote speech about Iran’s social, cultural and economic fabric. The attending economists soberly advised the audience that ‘deflation not inflation is the biggest problem facing the world economy’, that ‘the Federal Reserve is unlikely to raise rates soon’, and that ‘markets have become complacent about pricing risk’. They also challenged attendees to consider: ‘what happens if quantitative easing doesn’t work…?’

Less controversial but just as informative were the updates on supply-chain finance – which could be re-branded ‘cashflow solutions’ – the usefulness of multi-currency securitizations, the unintended consequences of Basel III, and the need to keep abreast of the ever-changing legal landscape of many Latin markets. Several corporate delegates challenged banks to be more consistently supportive, detecting fraud was examined, OFAC gave an overview of its current policies and initiatives, and an alternative investment fund outlined how it’s possible to earn high-yield in a global marketplace of abundant liquidity and compressed yield. This scenario captures much of Latin America where trade-related pricing continues to fall despite slowing economic growth and possible downgrades.

Following this spirited success, ATFA’s new Board plans to host a series of seminar-receptions in coming months - throughout the Americas - most immediately at Sullivan & Worcester’s New York office on June 16th to discuss ‘Current Developments and Issues in the Trade and Commodities Finance World.’ We are also looking to collaborate more closely with partners such as ITFA, FIBA and ABANA – on subjects ranging from risk participations to credit insurance to online education – as  we strive to give great value to our (100) members while keeping them abreast of ‘best trade finance practices in the Americas’.

As ever, we welcome any & all interested parties to join us whether as panelist, host or attendee, we actively encourage the sharing of ‘market intel’, and we look forward to networking with you soon.


The ITFA Board is pleased to announce the following three new members to its fast growing family.

PTA Bank is a treaty-based multilateral trade and development bank headquartered in Burundi and with regional hubs in Kenya, Mauritius and Zimbabwe. The Bank’s membership is open to countries and institutions from across the COMESA-EAC-SADC Tripartite region, as well as to countries and institutions from outside the region. The mission of PTA Bank is to be at the forefront of providing development capital and services to advance regional growth and integration, through customer focused and innovative financing solutions. Its strategic development plan leading to 2017 includes initiatives to deepen and broaden current areas of engagement in trade and project finance in existing and new member states, and to extend its activities to markets with low availability of capital and poor access to capital markets.

Premchand Mungar will be the main contact in relation to ITFA.

FBN Bank (UK) Limited (FBN UK) is a wholly owned subsidiary of First Bank of Nigeria Limited, hence the vision of the parent bank is reflected in its vision as the first choice UK and European bank for Africa. Its mission is to provide world-class international banking and trade services in support of commercial relations between Africa and the European Union. To derive the vision and mission of the Bank, FBN UK is positioned through its existing business structure to take full advantage of opportunities in the changing operating environment.

Phillip Wakefield will be the main contact in relation to ITFA.

Texel Finance Limited is a Lloyd’s registered and FCA regulated specialised credit and political risk broker, with a deep knowledge base of commodities and structured trade finance. Texel Finance’s parent company also owns Texel Asia Pte Limited, a Singapore-based broker, as well as Texel Capital Limited, which originates, structures and distributes structured trade finance transactions.

Katie Rhodes will be the main contact in relation to ITFA.


The ITFA board is delighted to announce that all the preparations for the 42nd Annual Trade and Forfaiting Conference are well on track. This year’s Conference which is going to be held between Monday 28th September and Wednesday 30th September, 2015  at Jumeirah Beach Hotel in Dubai, is sure to be another successful ITFA event.

The ITFA Board truly believes that the Annual Conference is an important opportunity for members and non-members alike, to strengthen their ties, create new relations and achieve operational synergies within the trade and forfaiting industry. To register for the Conference on-line and to view the Conference programme, please click on the following link.

So please do not forget to save the date! We look forward to seeing you all there.


Another month has flown by, which brings us to yet another successful tutorial session. Very soon you are all going to be experts at using the ITFA website. Yes that’s right! With the help of these tutorials, all our users will have the know-how on how to successfully use the various functions of our ITFA website - www.itfa.org.
In the June issue we will be going through the procedure of creating a new user which may come in handy from time to time. Let’s say you wish that a new recruit in your department has access to the website. In this case, the function will prove useful. We will also be learning how to add a profile picture to a user.
How would you go about creating a new user?
To create a new user in the website, simply hover on the ‘Users’ menu item and click on ‘Add New’.

Proceed to fill in the required fields: Username, Email, First Name, Last Name, Password, Repeat Password, Role, Address 1, Address 2, City, Zip, Country, Telephone and Gender. When done, just click on ‘Add New User’.

How would you add a profile picture to a user?
To add a profile picture to a user, hover on the Users menu item and click on ‘All Users’.

Choose the user you would like to add the profile picture to by clicking on the username.

Scroll down to the section titled ‘Custom User Profile Picture’ and click on ‘Upload New Image’.

The following screen is displayed. At this point, as learnt in previous tutorial sessions, one can either choose an image from the ‘Media Library’ or select ‘From Computer’ to upload a new image.

To select an image from the Media Library just click once on the ‘Media Library’ tab, and then select the image you want to add as a profile picture and click on ‘Select’.
Scroll down and click on ‘Update User’ to update the user profile.

To upload a new image select the ‘Upload Files’ tab on the top left of the page and then click on ‘Select Files’.
Choose the image you want to upload and click on ‘Choose’. Once you have uploaded the image, click on ‘Select’.
Scroll down and click on ‘Update User’ to update the user profile.
And there you have it...another two functions learnt by ITFA expert members!