[co-author; Talal Khan, trainee]
Sam Fowler-Holmes, Partner assisted by Jacqueline Cook, Of Counsel and Senior Knowledge Development Lawyer, presented our January webinar which looked at the second edition to A Practitioner’s Guide to Trade and Commodity Finance (“Guide”) which our Trade and Export Finance has updated and greatly expanded under the editorship of Geoffrey Wynne. The book, published at the end of 2021, marks a significant milestone for the firm marking ten years since the first edition. Sam gave a synopsis of what the Guide covers and how much development there has been in the area of trade, commodity and export finance and Jacqueline gave a round-up of some key legal and regulatory issues, some of which are still in development The Guide is based on English law and where appropriate gives some examples from other jurisdictions.
The new enhanced Guide serves, not just as an introduction to the key areas of trade finance, for those who are new to the sector but can also assist those already involved in trade and commodity finance by illustrating different structures and products available.
The Guide illustrates the interrelated nature of trade finance in all its guises, whether in relation to warehouse financing, receivables financing, collateral or insurance matters, as many of the same considerations permeate various areas of trade finance especially with respect to the risk.
Some of the key areas of the Guide
- Export credit agency finance. The volume of export credit agency work conducted has seen a significant increase, and there are now 115 export credit agencies as at the end of 2020 according to US Export Import Bank. Our focus in this chapter is on the types of facilities available and the support they provide.
- The increased use of structured letters of credit, their purpose, how to structure a transaction, and the need for transparency are also set out in the Guide.
- Independent payment undertakings (IPU’s), includes some of the work we have done with platform creators looking at the ways in which IPU’s can be digitalized.
- Receivables financing. The inclusion of two chapters on this topic with others looking at commodity fiancé and SPV structures reflects how much this area has expanded with a new chapter on Supply Chain Finance. Our key focus has been to cut through the jargon and explain what the structures and risks are, what the necessary documentation is and an exploration of the key issues that go into structuring successful transactions.
- Key tools – aspects of taking security, enforcement of security, letters of credit and standby letters of credit and demand guarantees, the key tools in a number of structures are also explained in the Guide
- Key regulatory developments. Various aspects of the Brexit transition and onshoring of EU law into the UK have been highlighted as well as the transition away from LIBOR. The volume and speed of change in this area really is remarkable and the Guide highlights, areas such as sanctions, AML, anti-bribery and corruption, risk sharing and participation and capital requirements, as well as the relevant insolvency reforms under English law.
Looking to the future
In the Guide, we recognize that the market is ever changing and some areas are still in the state of development, in particular ESG and sustainability in trade and export finance, and we expect to see key developments over the next few years.
A policy paper published by HM treasury on the 18 October 2021 (Greening Finance: A Roadmap to Sustainable Investing) covered UK Government’s vision to create a roadmap towards a sustainable finance industry and the role that financial institutions can play in this area. There has been some development but there is a lot of work left to be done. The UK’s green taxonomy is born out of this road map. As this had on-shored the EU taxonomy regulation into UK law, the UK government is looking to build an independent UK framework which will require financial institutions to demonstrate a commitment to various objectives and standards relating to climate change, the environment and sustainability.
A lack of uniform market standards in the context of ESG and sustainability presents challenges to achieving regulatory compliance. More standardization is needed but there have been encouraging developments. For example, the Loan Market Association published principles on ‘green loans’, addressing some of the key issues in ESG and sustainability through their Social loan principles and Sustainability linked loan principles issued in April and July 2021 respectively.
Looking forward to 2022 we expect principles of ESG to filter down into transactions and sanctions will perhaps dominate the landscape considering the current tensions in eastern Europe. Spring 2022 will bring the report from The Law Commission on the Digital Assets and we hope we will have some progress to reform English law to protect electronic Trade Documents so there is protection in law and not just in individual contracts. Finally, remember how important it is to engage with regulators so industry players can continue to shape the market and its developments. This is as important as ever considering the current regulatory landscape which is still in a state of flux, partly due to the slightly delayed EU/UK financial services framework which had been planned for summer 2021 and now hopefully should progress this year.
Please click here for a link to a video of the webinar.