Rules overhaul could release £22bn for UK exporters, ICC tells City watchdog
The UK arm of the world's largest business organisation said in an open letter to Britain's financial regulator that there is an 'urgent need' for reform of the rules governing trade finance, the financial instruments that facilitate global trade.
In a letter to Financial Conduct Authority chief Nikhil Rathi, Chris Southworth, the ICC UK's secretary-general, said the trade finance system suffers from a 'bureaucratic and inefficient' regulatory structure.
He told Rathi small and medium-sized exporters are beset by 'laborious compliance checks and over-burdensome capital requirements'.
It said the rules have negated the gains resulting from the Electronic Trade Documents Act (ETDA) 2023, which grants digital trade documents the same legal status as their physical counterparts.
According to the ICC, the ETDA has reduced average trade transaction times from two to three months to just one hour, and lowered transaction costs by up to 80 per cent.
Call for change: Regulations should be overhauled to release £22billion in trade finance and cut costs for small and medium-sized firms, the International Chamber of Commerce has urged
This has been compounded by a 'culture of fear and risk aversion' as a consequence of enforcement actions and penalties levied on financial institutions over a decade, according to Southworth.
He has called on regulators to enact the Basel III reforms - a series of measures to enhance the banking system's defences against economic shocks - more quickly so their benefits can be realised within the current Parliament.
HM Treasury and the Prudential Regulation Authority have delayed the application of Basel III until the beginning of 2027. The reforms are due to be fully implemented by January 2030.
Southworth said the timeframe fails to reflect what businesses are 'doing in the real world and lacks the ambition and urgency required to meet the scale of the economic challenge facing the UK'.
He called for 'more proportionate, lighter touch' regulations for trade finance, especially 'know your customer' (KYC) processes, which financial firms use to check their customers' identity.
The ICC also wants the capital requirement threshold lifted for trading SMEs to help shrink the £22billion trade finance gap.
Despite the UK underpinning 60 per cent of global trade finance, Southworth said that countries like India, the US, and the United Arab Emirates have 'more agile and responsive regulatory frameworks and digital infrastructure'.
The ICC said that making reforms was 'not only a growth opportunity but also an opportunity for the UK to be the global hub for modern, digital trade finance. Saying no to reform or continuing to delay it is no longer an option'.
An FCA spokesperson told This is Money that it was 'testing' the idea of relaxing KYC rules on small transactions with the UK Government, having sent a letter to the Prime Minister last December suggesting such an idea.
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