Global Trade has been growing strongly over the past decades. As a result of this, demand for financing has also increased exponentially. However, recent developments in Singapore has exposed deeper issues in the trade finance space, particularly in commodity trade and re-ignited discussion around the detection and mitigation of trade fraud.
Currently, banks rely on due diligence on their customers and transaction checks of the underlying trade flows to avail trade financing to corporates. However, there are limitations as banks are relying on physical copies of documents as an evidence of trade which is prone to forgery. In addition, banks are unable to ascertain if a particular trade has been financed more than once as these checks are restricted to within that particular bank or within their bank network. This information asymmetry across different banks exposes the banking industry to potentially fraudulent activities such as multiple financing or round-tripping, where the same transaction is taken to multiple banks for financing.
The TFR key objectives are to improve transparency of transactions and bridge the information asymmetry among banks today to (1) detect multiple financing and (2) validate genuineness of trade; by leveraging technology through the use of APIs to connect to Common Data Infrastructure (CDI) to request information from source e.g. shipping companies on Bills of Lading issuances and connectivity to International Maritime Bureau (IMB) or Lloyd’s List Intelligence (LLI) for shipment voyage information or any other 3rd party solution providers.
Following the successful conclusion of the POC last year, Singapore banks are now working with The Association Banks in Singapore (ABS) to develop and implement a full-fledged TFR as an industry utility.