A personal comparison and commentary by James Collins, currently working as Senior Manager, Trade Finance with Bank of Ireland and member of the ITFA Market Practice Committee.
A collaboration between the Wolfsberg Group, ICC and BAFT led to two years’ work aimed at making the 2011 Wolfsberg Trade Principles not only more up to date, but also more accepted and adopted by a broader audience than was previously the case. The revised Principles were published in January 2017.
My notes, originally prepared for my own benefit, comparing the new Wolfsberg Principles against the 2011 version can be found in the Members’ Section of the ITFA website. However, I would encourage all Trade Financiers to take the time to read the full version of the new Principles if you can.
A possible perception of the old Wolfsberg Principles was that it applied only to the larger, global trade banks. In considering an update, it was deemed that most Financial Institutions would be more likely to take up the guidance if the ICC was involved. The input and involvement of BAFT would of course add greater geographical scope and relevance too. The result should be seen as more universally applicable guidance than before.
In the Foreword to the 2017 Principles, the authors highlight that the core principles have not changed. Neither have the responsibilities of the banks involved in international trade to meet all of their Know Your Customer requirements and have good knowledge of the business they are conducting. Banks must still adhere to all relevant regulations on Money Laundering, Terrorist Financing, Bribery and Corruption, Sanctions etc.
What they have focused on is providing more detail concerning risk mitigation and the challenges and limitations faced by the banking community are also covered. Recommendations are given to policy makers, law enforcement agencies and so on, regarding what actions need to be addressed to help FIs meet their obligations.
Having studied the new Principles, the changes are subtle more than dramatic, yet effective in their subtlety nonetheless. They are written to assist and guide FIs to manage the current obligations and interpretations made on Trade Finance business. Pragmatically, the Principles accommodate the current compliance view of trade finance and its treatment as a high risk business.
The way the Principles are now set out and divided into the various sections and topics make them a lot easier to read too.
The Principles are split into two sections: The Core and Appendices.
The Core itself is divided into four parts: introducing the Core; Control; Escalation; Glossary.
Under these headings, such topics as: Parties in Trade Transactions; Financial Crime Risks; National and Regional Sanctions, Embargoes and the Non-Proliferation of Weapons of Mass Destruction (NPWMD); Challenges; Recommendations; Customer Due Diligence; Name Screening; Activity Based Financial Sanctions; Export Controls; Limitations; Three Lines of Defense are covered.
The Appendices cover the application of the Principles in respect of: Documentary Credits; Bills for Collection; Guarantees and Standby LCs; Open Account.
We have all experienced first-hand the ‘world of compliance’ in the six or so years since the Wolfsberg Principles was first published. In summary, I think the new Principles are much more clearly set out and they give fuller and better guidance in key areas than previously. Smaller banks can feel more included and that the Principles are equally applicable to them as they are to the larger banks. I think the involvement of the ICC and BAFT has complemented the good work of the Wolfsberg Group and you can sense this collaboration in the more accessible style these Principles now have. Previously, although I might have agreed with the sentiment of the 2011 Principles, I feel that the new update gives clearer guidance and is less subjective. Practitioners now find more direction on how to navigate this ‘new world’. Indeed, a key benefit the new principles have over the earlier version is time; by this I mean they are more considered and therefore arguably more appropriate for the trade finance industry today.
I understand the Group is also quite advanced with principles covering Open Account and FI Refinancing. From the Work the group has done on the Trade Finance Principles, I anticipate that guidance on these further topics will be equally as applicable, clear and helpful.
James Collins, ITFA Market Practice Committee member.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.