Singapore’s trade finance sector, which supports the local bunkering industry amongst other activities, is entering a new era, observes the Managing Director of international shipping and commodity law firm Helmsman LLC.
Ian Teo was commenting on the back of the new Code of Best Practices – Commodity Financing guidelines recently launched by the Association of Banks in Singapore (ABS).
“At the end of the day, we are entering a different paradigm. Now, trade finance is going through a lot of changes,” he said during the Helmsman LLC: Buzzkill or Buzzword? Commodity Financing Best Practices webinar held on Tuesday (1 December).
“Banks will be now looking at a lot more conditions and requirements when considering trade finance requests.
“Traders, you will need to think carefully. It can’t be just one guy sitting somewhere, deciding the trade, deciding the risk, deciding the risk management; there must be a system and process in place if you want to persuade your lender that you’re good for money.”
Teo believes the guidelines for commodity trading best practices will be the new “reference point” taken by banks when considering to give trade finance.
“It will do everyone well to study the requirements and to see how we can institute that internally within the trading houses or the bunker company,” he recommends.
“To be fair, obviously not everything that is stated in the guidelines would be suitable for every company. A lot of it depends on the risk profile, size and other aspects of the commercial trading entity.
“For trading houses, you need to understand this paper because that is a sign of what banks will be looking for.
“For the banks, you need to understand these are not legal obligations but guidelines. The Monetary Authority of Singapore has made it very clear that when they supervise you as a bank they will also take into consideration whether you have complied with the trade finance principles.”
Mi Nie Ho, Credit Risk and Trade Finance Specialist at Helmsman, was giving a presentation on credit risk management when she noted the financial sector to be taking steps to increase transparency in trades.
“So the banks and regulators are now proposing a central registry where they call it the trade finance registry, a common database for all to lock in security details, and this is to be shared and given access to market participants,” shares Ho.
“Now, why is transparency so important here? It is to ensure that the lenders have funded with full knowledge and the parties who have paid for the cargo have obtained rightful title to the cargo. Also, it’s to avoid a situation of multiple parties clamouring for the rights of just one cargo.”
A series of commodity trading mishaps involving players within the oil trading sector took place in Singapore earlier this year. Among them were cases involving spent bills of lading being pledged to several banks in order to obtain financing; a development which saw different lending parties claiming for the same portion of cargo at court.
Related: Association of Banks in Singapore publishes best practice code for commodity financing
Related: Singapore: 14 banks successfully develop digital Trade Finance Registry proof-of-concept
Related: Lawyers: Not end of the road for parties affected by thorny issues of commodity trading mishaps
Other related: Helmsman explains US and EU Sanctions: What is the Difference?
Other related: After Hin Leong, Is Singapore Still A Premier Commodity Trading Hub?
Other related: IBIA Convention 2020: Session summary of the APAC – Legal, Compliance and Regulations Panel
Photo credit: Helmsman LLC
Published: 3 December, 2020
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