The Asian Development Bank (ADB) yesterday launched the Trade Finance Scorecard – Regulation and Market Feedback, a new tool to address market gaps stemming from the unintended consequences of global measures to fight money-laundering and terrorism.
“Preventing criminals and terrorists from exploiting the global financial system is critically important,” said ADB’s Head of Trade and Supply Chain Finance Steven Beck. “But these regulations can also undermine jobs and growth at small businesses and developing countries. This new scorecard will open a channel of dialogue among stakeholders to help prevent crime and terrorism while financing growth and job creation.”
Creating, implementing, and complying with global measures to prevent financial illegal activity is challenging. While bankers can relatively easily determine that a large company isn’t involved in crime, getting the same assurances from small and medium-sized businesses and companies in developing countries can be difficult and costly. This contributes a $1.5 trillion global market gap for trade finance, according to ADB’s 2017 Trade Finance Gaps, Growth, and Jobs Survey. Bankers surveyed for the study identified unintended consequences of measures to stop criminals abusing the financial system as a key impediment to closing gaps. Accordingly, the Trade Finance Scorecard focuses on issues related to the interpretation, implementation, and compliance with regulations designed to curb money laundering and the financing of terrorism in the context of correspondent banking and trade financing.
Scores are assigned on two levels. Firstly, at a macro level, to identify characteristics of effective regulation that could be strengthened. Secondly, at a micro transactional level, to highlight specific challenges that can be addressed in the shorter term. Elements of effective regulation outlined in the first level are scored out of 10 on seven criteria: consistency (4), risk alignment (3), design (2), stakeholder communication (5), technology and data (5), enforcement (4), and quality control (3). These criteria are used to assess five working-level issues in the second level.
The scorecard is based on feedback from industry leaders and regulators and will complement existing tools such as the Financial Action Task Force’s recommendations against money laundering and terrorist financing.
“The scores are illustrative and directional,” said Beck. “We need better ways of addressing these issues, and we see the scorecard as the start of a process of engagement on this difficult subject.”
ADB’s Trade Finance Program (TFP) closes market gaps by providing guarantees and loans to over 200 partner banks to support trade, helping companies across Asia to engage in import and export activities. In 2017, TFP supported $4.5 billion in trade through 3,505 transactions. Its financial support is complemented by regular workshops and seminars to increase knowledge and expertise in trade finance products, anti-money laundering, and risk management.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totalled $32.2 billion, including $11.9 billion in cofinancing.