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Regulators Line Up For Trade Finance Modernization

Trade finance is an area of financial services that is notorious for its continued use of paper and legacy systems.

Some FinTech leaders say that this lack of modernization is at least partly to blame for the estimated $1.5 trillion trade finance gap that continues to plague the global market.

At the very least, outdated tools and workflows slow down the process of getting capital into the hands of exporters and importers that need funding to fuel business.

“Today, some documents are still sent the old-fashioned way,” explained Tsafrir Attar, vice president of Digitization at Surecomp. “Sometimes, they’re still sending documents using snail mail.”

But, as Attar told PYMNTS in an interview, there is good news. Trade finance players, including corporates, banks and regulators, are finally ready to embrace modernization and technology. RegTech is a particularly promising area of focus, he said, and as the pandemic continues to add pressure to digitize, the trade finance landscape may finally gain the momentum it needs to modernize and close the trade finance gap.

The RegTech Opportunity

As a highly regulated area of financial services, trade finance has struggled to enter the digital age. Regulatory concerns over the security and compliance that these tools offer is one factor behind that struggle.

Yet Attar said he has seen a significant shift in the landscape, including among the regulators watching over this space, when it comes to the potential for technologies like artificial intelligence (AI) and machine learning (ML) to inject efficiencies while preserving the integrity of transactions.

“Previously, regulation was very slow in adapting and approving of different technology,” he said. “Today, we can see loud and clear, now the regulators become more supporting of this and understand that the only way to help the industry is to approve new tools.”

In that spirit, Surecomp announced a partnership with anti-money laundering (AML) RegTech ThetaRay, which is now a part of Surecomp’s marketplace. The integration allows bank and corporate customers of Surecomp to seamlessly integrate ThetaRay’s AML capabilities within their own back offices.

The Digitization Road Ahead

The pandemic has continued to fuel digitization efforts in many areas of the enterprise, and trade finance is no exception, said Attar.

“The pandemic is the kind of situation where humankind is trying to find a solution to a specific problem,” he said. “People are working from home, and organizations understand that the only way to solve this situation is by providing digitalization flows and processes in different aspects of the business.”

In the area of regulation and compliance, technologies like digital signatures and electronic documents are finally becoming accepted as legitimate.

But it’s not the only way that digitization efforts are transforming the trade finance industry. According to Attar, as this modernization shift continues, there will be new business models that emerge that support the cash flow of organizations within the global market. New services will emerge to support healthier liquidity, he noted, and technology will be an integral part of that evolution.

In such a highly complex and regulated field, change is never easy. But as Attar noted, challenges breed opportunity to innovate and improve, and the trade finance space has emerged as one area primed to take advantage of a rare chance to embrace change.

“It will take time,” he said. “It’s not like any standard industry where in weeks we can apply a new capability. Although, the technology is already there, and now different entities in the equation are willing to support and push it forward.

“I think it will be easier to bring new technology into this business, and I believe it will see more capabilities in the next few months as well,” he added.

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