The United Nations must take urgent action to close up the world’s $1.6 trillion trade finance gap, according to the International Chamber of Commerce (ICC).
In a statement, the ICC highlighted the results of its 2016 Global Trade Finance survey – the largest annual report in its field – which revealed that almost 60% of applications for trade finance that banks rejected in the preceding year came from SMEs.
That finding suggests that entrepreneurs and small-business owners are particularly affected by the global shortfall, said the organisation.
Yet SMEs represent around 95% of the world’s companies – and 60% of private-sector jobs.
The ICC pointed out: “The UN has consistently recognised the importance of guaranteeing access to trade finance for development.
“In the 2015 Addis Ababa Action Agenda, UN members acknowledged that a ‘lack of access to trade finance can… result in missed opportunities to use trade as an engine for development’.”
In its assessment of the shortfall’s root cause, the ICC took the contentious view that the global network of anti-financial crime compliance legislation was mostly to blame, by making banks and other financial institutions often prohibitively sensitive.
Pointing again to the results of its annual survey, the ICC noted that the proportion of respondents who cited such regulations as a significant impediment to obtaining trade finance has risen steadily over the past few years, to reach 90% in last year’s report.
The organisation said: “ICC fully recognises the systemic importance of robust and well-targeted financial crime controls. Indeed, considerable progress has been made by the financial sector in addressing the risks posed by money laundering, terrorist financing, corruption and sanctions issues.
“However, the increasing complexity of global financial crime regulation – and associated regulatory and reputational risks – has resulted in banks adopting an extremely cautious approach to managing risk and, as a consequence, [those banks] are reducing and exiting certain types of business.”
That trend, it stressed, has hit some countries particularly hard. “In Argentina, for example, the number of correspondent banking relationships – bilateral agreements to handle basic trade-related services, such as international payments or letters of credit – held by Argentinian banks dropped from 64 in 2009 to just 13 in 2016.
“A dozen countries are now down to a single correspondent banking relationship, and risk being entirely cut off from the international finance system.”
Other recent studies, said the ICC, have confirmed its own findings on those regulatory effects, showing that many global banks have begun to exit relationships with a significant number of institutions in jurisdictions perceived as high risk.
The systemic issues raised by the erosion of correspondent banking relationships, said the organisation, are global in nature and therefore require a globally coordinated response.
“In this context,” it added, “ICC is calling for an urgent, UN-led review of the trade financing gap, with a particular focus on possible means to reverse the ongoing erosion of international correspondent banking networks.
“ICC looks forward to supporting any such review, drawing on the expertise of the ICC Banking Commission – a leading, global rule-making body for the banking industry – [and] producing universally accepted rules and guidelines for international banking practice.”